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1. Energy Monthly26th October 2016

2. Energy Monthly26th October 2016
Outlook
Crude Oil:For the coming month, we expect crude oil prices to trade higher on account
of estimates for freeze or cut in the crude oil production by the Organization of the
Petroleum Exporting Countries (OPEC) in its meeting scheduled on 30th Nov’16.
Withdrawal of crude inventories in the US from current scenario will hint towards
incremental demand for crude. Geo-political tensions will continue to keep the upside
momentum in crude oil prices. The decision by the OPEC nations to cut the oil output will
help the oil markets to balance the overall supplies, thereby keeping them in positive
territory.
The OPEC also pointed to a surplus scenario for the next year due to new fields in non-
member countries. U.S. shale drillers are also producing more cheap crude to oil markets
creating a major cause of concern.
The International Energy Agency (IEA) has stated that first half of 2017 will witness a
slowdown in oil demand growth, ballooning inventories and rising supply along with
oversupplied markets.
For the coming month, oil prices in the international market is expected in range of
$44/bbl to $52/bbl and on the domestic front prices are estimated in the range of
Rs.2980/bbl to Rs.3470/bbl.
Natural Gas: Weather always place a bigger picture in determining the price movement
of natural-gas because half of U.S. homes use it for winter heat and it supplies a third of all
power demand. According to MDA Weather Services in Maryland, it is forecasting
temperatures to be between 5 to 15-degrees-Fahrenheit which will be above normal
temperatures leading to rising stockpiles of the commodity.
However, sharp downside in the prices will be cushioned due to rise in demand from
power burn by 2 percent and industrial sector consumption increased by 1 percent week
over week. In the residential and commercial sectors, consumption rose by 3 percent.
The temperatures in the US and the inventory withdrawals will be the factors to watch
out for in deriving the natural gas prices this winter.
For the next month, gas prices in the international market is expected in range of
$2.50/mmbtu to $3.40/mmbtu and on the domestic bourses are estimated in the range
of Rs.185/mmbtu to Rs.230/mmbtu.

3. For the month of Sep’16, crude oil prices
gained by more than 3 percent on Nymex,
around 2 percent on Brent and around 1.2
percent on the MCX. On the domestic
bourses, prices rose less than international
markets due to appreciation in the Indian
Rupee.
There were numerous factors for upside in
crude oil prices. Factors like withdrawal in
crude inventories in the US, Organization of
the Petroleum Exporting Countries (OPEC)
planning to cutting their oil output,
Meeting of Non-OPEC producers in
Istanbul, host of good economic data sets
from the US led to rally in prices.
Moreover, geo-political tensions between
US and Yemen, Russia and the US got the
rational amount of share in increase in oil
prices. Crude oil which is also popularly
known as “Black Gold” surged sharply post
the surprise OPEC meeting during the end
of Sep’16, which was held for discussion on
cutting the crude output and production
from the cartel.
Saudi Arabia and Iran crashed the market
hopes after the two major OPEC producers
found a solution to compromise with its
production level in its meeting held on 26th
– 28th Sep’16. This factor will help the
global production scenario which is already
oversupplied.
In reverse of the market expectations,
OPEC surprised investors across the globe.
OPEC members struck a deal to limit the
crude output at its policy meeting in
Algeria. The OPEC nations reached an
agreement to limit its production to a
range of 32.5-33.0 million barrels per day
(bpd) which is currently producing at 33.24
million bpd.
Further, upside in prices was seen due to
robust economic data from the US, which
led to hopes for rise in demand for the oil
from the nation.
US Gross Domestic Product (GDP)
expanded at a 1.4 percent annual rate for
second quarter of the year which was up
from the 1.1 percent rate as reported in
the previous quarter.
Overall business investment growth was
seen at 1 percent annual rate of expansion,
which was the first gain since the third
quarter of last year. This factor suggests
that the worst might be over for energy-
sector leading in business investment.
Energy Monthly26th October 2016
Source: Bloomberg
3.48%
1.83%
1.20%
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
4.00%
Nymex Crude Oil ($/bbl) Brent Crude Oil ($/bbl) MCX Crude Oil (Rs./bbl)
Crude Oil Performance in Sep'16 (%)

4. During the same period, US consumer
spending, which account for around more
than two-thirds of U.S. economic activity,
was healthy in the second quarter, which
saw an increase of 4.3 percent annual rate.
US growth in exports outperformed when
compared to its imports which was enough
to boost the GDP by the most, since the
third quarter of 2014.
US Crude inventories are declining
continuously for five weeks in a row. Since
the beginning of September, the total
inventories have withdrawn by around 26
million barrels.
The absolute crude inventories in the US
now stands at 499.74 million barrels (as on
30th Sept 2016). However, the crude
inventories still remains high for this time
of the year.
Moreover, geopolitical tensions led to
positive movement in oil prices. The US
military had carried out a series of “limited
self-defence strikes” in Yemen. The attack,
authorized by President Obama, was
carried out in retaliation to recent attacks
on the US naval destroyer, USS Mason.
However, the psychological barrier of $50
mark for oil remained crucial and was
unable to break the same in last month.
Energy Monthly26th October 2016
Source: Bloomberg
310000
360000
410000
460000
510000
Weekly US Crude Oil Inventories
200000
210000
220000
230000
240000
250000
260000
270000
Weekly US Gasoline Inventories
110000
120000
130000
140000
150000
160000
170000
Weekly US Distillate Inventories

5. Nymex natural gas prices declined by more
than 3 percent for the month of Sep’16 on
account of weak demand and above normal
temperatures which led to decline in
demand for the commodity. On the
domestic front, prices dropped around 0.2
percent in the last month.
Working natural gas stocks are 3,759 Bcf,
which is 2% greater than the year ago level
and 5% greater than the five year (2011–
15) average. Working gas stocks totaled at
3,759 Bcf, which is 192 Bcf more than the
five-year average and 56 Bcf more than last
year at this time. Working gas stocks
remain poised to end the 2016 refill season
at near record levels.
US natural gas consumption normally peaks
during the winter season (October-March),
as nearly half of nation homes use natural
gas as their primary heating fuel. Industrial,
residential and commercial sector are the
biggest consumers of natural gas in the US.
There is an increase in consumption across
all the three sectors since the beginning of
September.
Energy Monthly26th October 2016
According to Baker Hughes, for the week
ending on 7th Oct’16, the natural gas rig
count decreased by 2 to totaled at 94.
According to EIA estimates, residential
consumption will average at 61.3 thousand
cubic feet (tcf) per household from
October 2016 to March 2017, which would
be 10 percent higher than last winter.
EIA expects households heating primarily
with natural gas to spend at around $116
that would be 22 percent more than this
winter compared with last winter, as a
result of the higher prices and increased
natural gas consumption.
Overall, higher level demand is estimated
in 2016 for natural gas which would be
majorly driven from electric-sector.
Source: Bloomberg
Source: Bloomberg
-3.23%
-0.21%
-3.50%
-3.00%
-2.50%
-2.00%
-1.50%
-1.00%
-0.50%
0.00%
Nymex Natural Gas ($/mmbtu) MCX Natural Gas (Rs/mmbtu)
Natural Gas Performance in Sep'16 (%)
800
1,300
1,800
2,300
2,800
3,300
3,800
US Natural Gas Inventories

6. SEBI Certified – Research Analyst www.choiceindia.com
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Energy Monthly26th October 2016
www.choicebroking.incustomercare@choiceindia.com
Anish Vyas
Digitally signed by Anish Vyas
DN: cn=Anish Vyas, o=Choice Merchandise
Broking Pvt. Ltd, ou=Sr. Research Associate,
email=anish.vyas@choiceindia.com, c=IN
Date: 2016.10.26 13:35:16 +05'30'