Energy Update

Friday| April 12, 2013

Content
Crude oil month-wise performance analysis Oil inventories Brent crude oil performance Natural gas price performance Outlook

Overview This months rally in gold prices above the $1900/oz mark is indicative of structural problems and difficulties at the global economic level. Investors flocked to gold as a safe-haven investment, leading it to touch all-time highs almost every-day. The recent (last 2-3 days) decline in gold prices is partly due to profit-booking at higher levels coupled with expectations of further stimulus measures by Federal Reserve Chairman Bern Bernanke at the Jackson Hole Symposium. On the back of these positive expectations, markets are witnessing a bit of stability, and further trend in the global financial markets would be based on the outcome of the decisions taken by the

Vedika Narvekar - Sr. Research Analyst Vedika.narvekar@angelbroking.com (022) 3935 8130

Anish Vyas - Research Analyst anish.vyas@angelbroking.com (022) 3935 8104

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Energy Update
Friday| April 12, 2013

Crude oil prices in a positive territory in March amid optimistic statement from major central bankers
Crude oil prices recovered by 5.6 percent in the last month, after a drop in the prices in the month of February. NYMEX Crude oil prices rose in the month of March on the back of optimistic statement from US Federal Reserve Chairman Ben Bernankes Statement that central bank will continue with its loose monetary policies. Further, decline in the US unemployment rate also led to expectations of increase in demand for the fuel. Additionally, European Union, European Central Banks (ECB) along with International Monetary Fund (IMF) provided a bailout package of 10 billion Euros ($13 billion) to Cyprus. Crude oil prices touched a high of $97.35/bbl in the month of March and closed at $97.23/bbl.
Prices 110 106 105 100 100 371 95 90 351 85 80 335 341 82 95 364 364 94 95 90 88 87 369 102

Average Monthly Nymex Crude Oil Prices vs. Inventories

382 103 385 377 371 374 363 95 95 374

Inventories 385 390 380 370 93 360 350 340 330

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Average Monthly Nymex Crude Oil Prices ($/bbl)

Avg. Crude Oil Inventories

Source: Reuters, Angel Research

On the domestic bourses, crude prices rose by 6.4 percent. Oil prices touched a monthly high of Rs. 5,517/bbl and closed at Rs.5,400/bbl in the last trading session of the last month. Appreciation in the Indian Rupee capped sharp gains in crude prices. However, sharp upside in the prices was capped on account of political uncertainty in the Italy after the Parliament elections failed to form a majority of the government. Apart from that, rise in unemployment rate in the Euro Zone increased the concerns of the debt crisis of the Euro region which exerted downside pressure on the oil prices. Also, Cyprus was given ultimatum to seek a bailout of 5.8 billion Euros which it struggled initially also acted as a negative factor for the markets. Further, sharp upside in crude oil prices were prevented as EIA report showed US crude oil production climbed by 66,000 barrels a day to 7.159 million barrels a day for the week ending on 8th March. The output is at the highest level since July 1992. The rise in production is because on new technology which is a combination of horizontal drilling and hydraulic fracturing, or fracking that has unlocked supplies trapped in shale formations in states including North Dakota, Texas and Oklahoma. US crude output is expected to be at an average of 7.31 million barrels a day in 2013 and forecasted at 7.88 million in 2014 as per the EIA short term energy outlook report.
Average Monthly Crude Oil MCX Prices (Rs/bbl)
5,400 5,300 5,200 5,156 5,100 5,000 4,900 4,800 4,700 4,600 4,500 4,638 4,883 4,767 4,772 4,840 5,042 5,153 5,366 5,370 5,230 5,171 5,145 5,149 5,073

Source: Reuters, Angel Research

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India is in talks with OPECs biggest producers -Saudi Arabia, Iraq and Kuwait to ship extra crude to country as it prepares to halt its purchases from Iran on account of global sanctions. Indian refiners are waiting for an approval from oil ministry to stop buying Iranian oil and discussing with the countries for the year starting from 1st April. As per the International Energy Association (IEA) Indias crude oil shipment from Iran rose by 13 percent to 1.28 million barrels a day in February in spite of US sanctions. As per the Libyas Oil Minister Abdulbari al-Arusi, crude oil pipeline of Waha Oil Company has been shut down after a strike by fuel truck drivers and is forecasted to affect the output of around 120,000 barrels a day.

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Energy Update
Friday| April 12, 2013 Joint Organizations Data reported that both Saudi Arabia and Iraq raised its crude outputs in January for the first time in last three months as there is a great demand from Asian countries. The kingdom shipped around 7.09 million barrels a day which is up 30,000 barrels a day from December. Iraq which ranks second biggest producer in Organization of Petroleum Exporting Countries (OPEC) output increased by 10,000 barrels a day to 2.36 million a day during the same period.

OPEC production at highest level since November

As per the Organization of Petroleum Exporting Countries (OPEC) monthly report the cartel pumped in 30.31 million barrels a day in the month of February as against 30.24 million barrels a day in January. The production is at highest level in the last three months since November. Saudi Arabia raised its crude production to 9.15 million barrels a day in the month of February as rise of 100,000 barrels from earlier month as per the official of the Persian Gulf who wished not to be identified as data was highly confidential.

US Crude Oil inventories at 22 years high in March

As per the US Energy Information Administration (EIA), crude oil inventories rose sharply around 2.9 percent for the month of March. The rise in the inventories is mainly because of excess production by the refineries as a result of new technology. The average crude oil inventories stood at 384.52 million barrels in the month of March and around 374.94 million barrels on a year till date basis for 2013. On the quarterly basis, US crude oil inventories increased by 8 percent in Q1 2013 as compared to Q4 of 2012.
Crude Oil Inventories (mn barrels)
390 385
381.4 384 388.6

385.9 382.7

380
376.4

375
371.7

377.53

370
369.1

372.2

365
361.3

363.1

360

360.3

Brent Crude Oil performance

Brent Crude oil prices moved in the opposite direction with that of Nymex crude oil prices and declined around 1.22 percent in the month of March. The important reason for the fall in the prices was the concerns for Euro Zone debt crisis, decline in the regions economic sentiments along with political uncertainty in the Italy after the Parliament elections failed to form a majority of the government. While on a year till date basis, prices have declined by 0.9 percent.

Source: Reuters, Angel Research

Average Monthly Brent Crude Oil Prices ($/bbl)

125.0 123.70 120.0 115.0 110.0 105.0 100.0 95.0 90.0 103.05 96.50 116.67 114.32 112.20 108.66 116.07 109.54

113.03 112.32 111.52 109.53 109.20 109.12

Source: Reuters, Angel Research

Additionally, strength in the DX coupled with mixed global market sentiments exerted downside pressure on the crude prices. Further, rise in the Saudi Arabias crude oil production also acted as a negative factor for the crude oil prices.

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However, sharp downside in the prices was cushioned on account of nuclear tension in the Iran creating supply concerns. Further, bailout provided by EU, ECB and IMF also prevented sharp fall in the prices.

Energy Update
Friday| April 12, 2013

Natural Gas prices increased by 15 percent during the last month

Average Monthly Nymex Natural Gas Prices vs. Inventories
3.80 3.60 3.40 3.20 3.00 2.80 2.60 2.40 2.20 2.00 2.72 2.54 2.30 2.04 1,800 2.50 2.51 2,300 2.97 2.82 2.91 2,800 3.51 3.44 3.35 3.31 3,300 3.71 3.77 3,800
210 200 190 180 170 160 150 140 130 120 110 100 125 117 107 140 137 140 164 157 159 188

Average Monthly Natural Gas MCX Prices (Rs/mmBtu)

203 189 182 179 206

Average Monthly Nymex NG Prices ($/mmBtu)

Avg. NG Inventories

Source: Reuters, Angel Research

Nymex natural gas prices increased sharply around 15 percent in the last month on the back of drastic fall in the US natural gas inventories which fell by 24.3 percent in the month of March. Further, expectations of warm weather conditions will lead to rise in demand for fuel as it is used for air conditioning purposes. On a year to date basis, prices have increased around 19.3 percent. However, strength in the DX coupled with mixed global market sentiments capped sharp upside in the gas prices. As per the US Energy Information Administration (EIA), US natural gas inventories have plunged by 52 percent on a year to date basis, while ion the month of March inventories dropped 24 percent. The chart above shows that prices increased from a monthly average of $3.31/mmbtu in February to an average of $3.77/mmbtu in March. Natural gas inventories have declined from an average of 2.505 trillion cubic feet in the month of February to an average of 1.873 trillion cubic feet for the month of March. In the Indian markets, prices have gained around 14.8 percent, but sharp upside was restricted on the back of appreciation in the Rupee. The Indian Rupee appreciated around 0.2 percent in March. In the above chart it is seen the average Indian natural gas prices rose from Rs.179/mmbtu in February to an average prices of Rs.206/mmbtu in the month of March.

Outlook
In the coming month, we expect crude oil prices to trade lower on the back of weak global market sentiments, expectations of slowdown in the global economic growth, unfavorable economic data from US and Euro Zone along with strength in the DX. Additionally, cut in the demand forecast by OPEC to 800,000 barrels a day in 2013 coupled with International Energy Agency (IEA) estiamtes of decline in oil consumption to 795,000 barrels a day in current year will exert downside pressure on the prices. However, sharp downside will be cushioned on account of geoplotical tension on Korean peninsula, unrest in Nigeria and expectations of more sanctions on Iran after failure of talks between Persian nations and global major powers. In the domestic markets appreciation in the Indian rupee is expected to add more pressure on the prices on the MCX. Natural gas prices are expected to trade on a positive note on account of forecast for warmer weather conditions which will lead to increas in demand for natural gas for the purpose of air-conditioning. Also, decline in the US natural gas inventories will also support an upside in the gas prices.

Technical Levels
Commodity Nymex Crude Oil ($/bbl) MCX Crude Oil (Rs./bbl) Nymex Natural Gas ($/mmbtu) MCX Natural Gas (Rs./bbl) Contract May May May April Trend Sideways Sideways Up Up

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S2 88 4840 199 3.6

S1 91 5000 213 3.9

LTP 94.5 5187 224.6 4.117

R1 97.5 5360 235 4.3

R2 100.5 5520 250 4.6

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