You are here

Broker's take: Oil markets over-reacting to price fall, says Philip Futures

Wednesday, March 18, 2015 - 11:07
OILBLOOM51.jpg
PHILIP Futures said on Wednesday that oil markets are over-reacting, adding it is not convinced the drop in oil prices can last much longer.

PHILIP Futures said on Wednesday that oil markets are over-reacting, adding it is not convinced the drop in oil prices can last much longer.

It said US inventories remain at a high and with production remaining strong, it finds it hard for stockpiles to decrease.

The Federal Open Market Committee (FOMC) is expected to release its interest rate decision and monetary policy statements at 2am on Thursday (Singapore time), and Philip Futures said if US interest rate hikes are pushed back, it would likely weaken the greenback, but only in the short run.

"Eventually, we will see the USD strengthening back and this would likely cause USD-denoted crude oil to be more expensive," it said.

In its crude oil summary, Philip Futures added that West Texas Intermediate (WTI) April 2015 and May 2015 continues to plummet just before US crude inventories.

"It is surprising that new lows for WTI could be attained even though fundamentals remained unchanged. In fact, with higher economic sentiments in the Eurozone, this should prop prices up. However, it seems to have little effect on the market. We continue to attribute this drop to a closing off of the WTI April 2015 contract. This could also be due to traders taking positions in anticipations of the coming FOMC meeting and US crude inventory figures."

It added that it expects both WTI May 2015 and Brent May 2015 to move up on Wednesday and end above US$45.52 and US$54.55 respectively.