SPECIAL MONTHLY REPORT ON

ENERGY(August 2018)

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ENERGY PERFORMANCE (July 2018) (% change)

ENERGY PERFORMANCE (January - July 2018) (% change)

Natural Gas

Crude oil

Natural Gas

Crude oil

August 2018

-6.92

-7.27

-3.98

-4.79

-8.00 -7.00 -6.00 -5.00 -4.00 -3.00 -2.00 -1.00 0.00

MCX

NYMEX

22.96

14.91

1.63

-4.47

-10.00 -5.00 0.00 5.00 10.00 15.00 20.00 25.00

MCX

NYMEX

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ENERGY COMPLEX

Overview

In the month of July crude oil prices have seen

selling pressure at higher levels as stronger

greenback and fear of slow global economic growth

kept the prices downbeat. Recently finance

ministers and central bank governors from the G20

warned that global economic growth risks have

increased amid rising trade and geopolitical

tensions. Overall it managed to hover in range of

$67.03-75.27 in NYMEX and 4585-5173 in MCX.

The U.S. Energy Information Administration stated

that domestic crude production reached a record 11

million bpd. U.S. energy companies cut the number

of oil rigs by the most since March as the rate of

growth has slowed over the past month or so with

recent declines in crude prices. Prospects of higher

output from OPEC rose after Saudi Arabia to offer

extra crude supplies to some customers.

Outlook

Crude oil prices may continue to move sideways to

upside path on tighter market conditions. Recently

Saudi Arabia halting crude transport through a key

shipping lane coupled with falling U.S. inventories

supporting the prices. Market players will be looking

towards the weather in August month especially for

any signs of potential hurricanes as adverse weather

conditions can have a significant impact on the oil

market, potentially causing severe supply

disruptions. Saudi Arabia's Energy Minister Khalid

al-Falih stated that the world's top exporter was

"temporarily halting" all oil shipments through Bab

El-Mandeb strait immediately, after an earlier

attack on two crude vessels by the Iran-aligned

Houthi movement. According to the U.S. Energy

Information Administration, around 4.8 million

barrels per day of crude oil and refined products

flowed through the Bab al-Mandeb strait in 2016

toward Europe, the United States and Asia.

Elsewhere, China's crude oil imports from the US for

July have fallen sharply from June, and are expected

to drop even further for August.

Crude oil can take support near 4450-4500 and

buy on dips strategy should be used for upside

level of 5000.

Key News

Instability in Libya is supporting crude

higher

Libya’s oil production seesawed recently because of a

stand-off at eastern export terminals and the abduction

of two workers at Sharara oilfield. Military clashes

followed by a political power struggle forced the

National Oil Corporation (NOC) to halt exports at Ras

Lanuf, Es Sider, Zueitina and Hariga terminals in late

June and early July, threatening to keep as much as

850,000 barrels per day (bpd) offline. Libya's national

oil production fell to 527,000 barrels per day (bpd) from

a high of 1.28 million bpd in February following recent

oil port closures, the head of the National Oil

Corporation (NOC).

Falling Venezuela production

Venezuelan oil production crashed to a new 30-year low

of 1.5 million barrels a day in June, the Organization of

the Petroleum Exporting Countries (OPEC) stated

recently. The South American nation earns 96 percent

of its revenue through oil sales but a lack of foreign

exchange has sparked economic paralysis that has left

the country suffering serious shortages of food and

medicine. According to the International Monetary

Fund (IMF), Venezuela's economic collapse is one of the

worst in modern history. The economy has shrunk 45

percent since 2013 and the IMF expects it to contract 15

per cent in 2018 alone, with inflation reaching 13,800

per cent.

Highlights of latest EIA report

EIA estimates that U.S. crude oil production averaged

10.9 million barrels per day (b/d) in June, up 0.1 million

b/d from the May level. EIA forecasts U.S. crude oil

production to average 10.8 million b/d in 2018, up from

9.4 million b/d in 2017, and to average 11.8 million b/d

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in 2019. If realized, both of these forecast levels

would surpass the previous record of 9.6 million b/d

set in 1970.

EIA forecasts that total U.S. crude oil and petroleum

product net imports will fall from an annual average

of 3.7 million b/d in 2017 to an average of 2.4 million

b/d in 2018 and to an average of 1.6 million b/d in

2019, which would be the lowest level of net imports

since 1958.

EIA forecasts total global liquid fuels end-of-year

inventories to be unchanged in 2018 compared with

2017, followed by a rise of 0.6 million b/d in 2019.

Forecast global liquid fuels balances indicate a

looser oil market in the second half of 2018 and

through the end of 2019 compared with the tight oil

market conditions that prevailed for 2017 and the

first half of 2018. Although global petroleum and

other liquid fuels inventories declined by an average

of 0.5 million barrels per day (b/d) in 2017, EIA

expects inventories to be relatively unchanged in

2018 and to increase by 0.6 million b/d in 2019.

Global Petroleum and Other Liquid

Fuels Consumption

Global consumption of petroleum and other liquid

fuels grew by 1.6 million b/d in 2017, reaching an

average of 98.5 million b/d for the year. EIA expects

consumption growth to average 1.7 million b/d in

2018 and in 2019, driven by the countries outside of

the Organization for Economic Cooperation and

Development (OECD). Non-OECD liquid fuels

consumption growth accounts for 1.3 million b/d of

the global growth in 2018 and in 2019. The non-

OECD liquid fuels consumption growth is driven by

forecast growth in non-OECD gross domestic

product (GDP) that averages 4.1% in 2018 and in

2019.

Non OPEC Petroleum and Other Liquid

Fuels Supply

EIA forecasts that non-OPEC petroleum and other

liquid fuels supply will increase by 2.6 million b/d in

2018. Combined production growth of 2.4 million b/d

in the United States and Canada accounts for most of

the 2018 supply growth. EIA expects non-OPEC

petroleum and other liquid fuels production to rise by

another 2.3 million b/d in 2019. Combined production

growth of 1.7 million b/d in the United States and

Canada is again forecast to contribute most of this

growth, and Brazil’s production is expected to grow by

0.3 million b/d in 2019.

Brent WTI Spread

Analysis: Brent WTI crude oil spread widened from

below 3 to above 5.5. Overall it can hover in range of $3-

7 in the month of August.

Source: Reuters

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Natural Gas

Overview

Natural gas traded on weaker path last month as

increase in US production and lower demand kept

the prices under pressure. Overall it traded in range

of $2.7-2.92 in NYMEX and 186.80-200.80 in MCX

in the month of July. In recent months, the biggest

factor affecting the U.S. gas market has been

speculation on whether production, which is at

record levels, would be enough to cut the vast

storage deficit and boost stockpiles to near-normal

levels before the winter. Prices have been trading on

the defensive as cooler than normal weather is

spreading east to west which should reduce cooling

demand for natural gas during the peak of the

summer season.

Outlook

Natural gas can continue to remain on sideways

path as weather related demand to give further

direction to the prices. The weather is expected to

be warmer than normal over the next 8-14 and 6-10

day forecast according to the National Oceanic

Atmospheric Administrations.

Natural gas can trade with sideways to weak

bias as it can face resistance near 205 and

can take support near 176 in the month of

August.

According to the Forecasters at

NatGasWeather

The current weather conditions show that weather

is moving west to east with a standard zonal flow. It

also appears that a troughing pattern is developing

where warm weather is pushing up and covering

most of the mid-west. The weather is expected to be

warmer than normal over the next 8-14 and 6-10 day

forecast according to the National Oceanic Atmospheric

Administrations. Warmer than normal weather will

increase power demand especially in Southern

California where natural gas is used to generate

electricity.

EIA estimates of Natural gas

U.S. dry natural gas production averaged 73.6 billion

cubic feet per day (Bcf/d) in 2017.EIA forecasts dry

natural gas production will average 81.3 Bcf/d in 2018,

which would establish a new record. EIA expects

natural gas production will rise by an additional 3.1

Bcf/d in 2019 to 84.5 Bcf/d.

Natural Gas Consumption

Total U.S. natural gas consumption averaged 74.2

billion cubic feet per day (Bcf/d) in 2017 and is forecast

to increase by 7% to 79.7 Bcf/d in 2018 before slightly

decreasing to 79.6 Bcf/d in 2019. In 2018, increases in

total natural gas consumption are mainly attributable to

higher electric power sector use, which is forecast to

increase by 2.4 Bcf/d (10%) from 2017 levels. The 2018

increase also reflects higher residential and commercial

demand because the first quarter of 2018 was colder

than the first quarter of 2017.

Natural Gas Production and Trade

EIA estimates that dry natural gas production will

average 81.3 Bcf/d in 2018, an 11% increase from 2017

levels. In 2019, production is expected to rise by another

4%, averaging 84.5 Bcf/d for the year. The expected

growth in natural gas production is largely in response

to improved drilling efficiency and cost reductions, as

well as higher crude oil prices that contribute to higher

associated gas production from oil-directed rigs.

Forecast natural gas production growth is supported by

planned expansions in liquefied natural gas (LNG) and

pipeline exports.

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Vandana Bharti (AVP - Commodity Research) Boardline : 011-30111000 Extn: 625 vandanabharti@smcindiaonline.com

Sandeep Joon Sr. Research Analyst (Metal & Energy) Boardline : 011-30111000 Extn: 683 sandeepjoon@smcindiaonline.com

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August 2018