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    05 Dec 2011                                     Energy Weekly




    05 Dec 2011                                                             FOR PRIVATE CIRCULATION ONLY

                                                 CRUDE OIL
    HIGHLIGHTS

       •   NYMEX crude rose 4.3% last week marking its first gain in three weeks
       •   Crude rose last week amid gains in equity markets, tensions in Iran and spread trade
       •   US DJIA index rose 7% last week marking its first gain in three weeks
       •   The US dollar index fell 1.2% last week marking its first drop in five weeks
       •   Germany and France to push for fiscal integration in the Euro-zone, say officials
       •   Fitch affirms US credit rating but downgrades outlook from stable to negative
       •   Global growth will slow to 3.4% in 2012 from 3.8% this year, says OECD
       •   China cut reserve requirement ratio for banks by 0.5%, first cut since Dec 2008
       •   Central banks around the world coordinated to lower borrowing costs
       •   US non-farm payrolls rose by 120,000 in Nov; unemployment rate dipped to 8.6%
       •   EIA noted a 3.932 mn bbl increase in US crude oil stocks as against forecast of 0.188 mn bbl drop
       •   Iranian protestors attack UK embassy in Tehran; Britain removes Iranian diplomats from UK
       •   The premium of ICE Brent crude Jan contract over NYMEX WTI crude stood at $8.98/bbl Friday as
           against $9.63/bbl a week ago
       •   The number of rigs drilling for oil in the U.S. rose by 2 to 1132 rigs, as per Baker Hughes report

    MARKET ANALYSIS
    Crude oil ended higher for four of five trading sessions last week and ended with a 4.3% gain marking its
    first weekly rise in three weeks. Crude oil moved in a range of $4.62/bbl last week ($101.75-97.13/bbl)
    Crude oil rose sharply last week amid a rally in equity markets and as US dollar shed some of its recent
    gains. Crude oil also gained support from tensions relating to Iran and Syria and spread trade between WTI
    and Brent crude. However weighing on crude oil prices was sharp rise in stocks last week. Equity markets
    rose last week amid hopes that EU members will work in coordination to resolve their debt problems. A
    move by central banks to improve liquidity in the market and upbeat US economic data also boosted
    market sentiments. Uncertainty about major economies however kept a check on the upside.

    Optimism about Euro-zone rose after reports noted that Germany and France are working on fiscal
    integration as a step to resolve debt problems. Meanwhile, unconfirmed reported noted that IMF is working
    on a bailout plan for Italy. Optimism waned after EU members indicated that they will fall short of their
    target of leveraging aid fund. Weaker economic data, mixed outcome of Italian bond sale and downbeat
    outlook by OECD kept concerns high. Optimism about US rose following robust retail sales on Thanksgiving
    holiday and some upbeat economic data. However this was countered with a rating downgrade for biggest
    four banks by S&P while Fitch cut its outlook on US. China indicated a shift in monetary policy by lowering
    its reserve requirement ratio however this was countered by weaker PMI reading which indicated
    contraction. Market rallied after Fed and five other central banks moved to reduce cost of borrowing US
    dollar by foreign countries from their respective central banks. However optimism was short-lived.

    Increasing rift between Iran and western nations has fuelled concerns that supply from Iran may be
    disrupted. Crude oil also gained support from continuing tensions in Syria where protestors are protesting
    the autocratic rule. WTI crude also benefited from spread trade as gap between WTI and Brent narrowed
    below $9/bbl for the first time since Jan. Expectations that supply overhang in US will end has forced
    market players to reverse their bets. Overall, crude oil rose amid a rally in equity and commodity markets
    and drop in US dollar. Tensions relating to Iran and Syria also lent support to prices. While tensions in
    Middle-east will continue to underpin prices, trend in equity and currency markets will be the key price
    determining factor for crude oil in the near term and focus will be on US and Euro-zone economy. Apart
    from it, focus will be on weather related demand during winter

    STOCKS AND DEMAND
    EIA weekly inventory report noted 3.932 mn bbl increase in US crude oil stocks as against forecast of a

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    05 Dec 2011                                      Energy Weekly
    0.188 mn bbl decline. US crude oil stocks rose amid an 8.9% rise in imports and a 0.9 drop in refinery
    usage. While total stocks rose, stocks at Cushing, the delivery terminal for NYMEX crude futures, fell by 0.7
    mn bbl to 31.3 mn bbl. EIA also noted a 5.526 mn bbl decline in distillate stocks as against forecast of a
    1.056 mn bbl decline. Gasoline stocks rose by 0.213 mn bbl as against forecast of 1.544 mn bbl increase.
    Demand scenario was mixed last week. Crude oil demand, as measured by total product supplied,
    averaged 17.946 mn bpd last week, down 3.4% from a week earlier. Distillate demand fell 20.3% to
    average 3.24 mn bpd as mild weather limited heating demand. Gasoline demand however rose 2.1% to
    average 8.769 mn bpd due to Thanksgiving holiday. Overall, US crude oil stocks are in the upper limit of
    the average range for this time of the year. Gasoline stocks are in the middle of average range for this
    time of year while distillate stocks are in the lower limit of the average range. The spread between WTI
    and Brent crude has narrowed sharply in last few days amid expectations that supply glut in US may ease
    as crude is moved out of Cushing. Meanwhile restart of Libyan oil supplies is weighing on Brent prices. The
    spread however is unlikely to narrow substantially as stocks are still high in US and demand remains tepid.
    Continuing tensions in Middle-east will also lend support to Brent prices.

    CURRENCY MOVEMENT
    The US dollar index fell 1.2% last week marking its first decline in five weeks. The US dollar fell 1.3%
    against the Euro while British Pound rose 0.9%. Swiss Franc gained 1% against the greenback but yen
    noted a marginal 0.3% drop. The US dollar index eased last week as gains in equity markets reduced safe
    haven demand. Equity markets gained last week amid hopes that EU members will work closer to resolve
    debt problems. Market sentiments were also boosted after central banks took steps to improve liquidity in
    the market. China cut its reserve requirement rate while Fed and other five central banks lowered cost of
    borrowing dollar for foreign countries from their own central banks. The US dollar however noted some
    gains later in the week as equity markets came to a standstill. Upbeat US jobs data also lent support to the
    currency.

    ECONOMIC DATA
    The US economic data released last week was mixed keeping concerns high about the economy. US
    consumer confidence, ADP employment, Chicago PMI, pending home sales, ISM non-manufacturing,
    construction spending and Dallas Fed manufacturing index was better than expectations while new home
    sales, S&P case-Shiller home price index and weekly jobless claims failed to meet expectations. The key
    non-farm payrolls data noted an increase in jobs that was largely in line with expectations but
    unemployment rate unexpectedly fell. Euro-zone economic data was mixed last week. German GfK
    consumer confidence and unemployment data was better than expectations. On the other hand, Euro-zone
    business climate indicator, economic, industrial and services confidence index, German retail sales and
    Euro-zone unemployment rate data failed to meet expectations. German and Euro-zone manufacturing PMI
    was in line with expectations. German CPI and Euro-zone PPI fell more than expectations. UK economic
    data was better than expectations. GfK consumer confidence, manufacturing and construction PMI was
    better than expectations. Chinese economic data indicated slowdown was both manufacturing and non-
    manufacturing PMI dropped below 50 level.

    SPECULATIVE POSITIONS
    The recent rangebound movement in crude oil was coupled with a marginal drop in net long position. As
    per US CFTC report for the week ended Nov.29, non-commercial traders for crude oil futures cut long and
    short position by 1.9% and 3.2% respectively. Net long position fell by 0.6% to 156479 contracts. Long
    positions have declined for past three weeks and stand at 308005, the lowest level seen since Jan.

    OUTLOOK
    Crude oil may shed of its recent gains as uncertainty persists that EU members could come up with a
    comprehensive solution to resolve debt problems. Weaker Chinese economic data will also weigh on
    market sentiments while expectations of an interest rate cut will keep a check on Euro against the US
    dollar. Higher stocks in US storage and weaker demand will also weigh on prices. However we do not
    expect a sustained decline in crude oil as we may not see a major sell-off ahead of the outcome of the EU
    summit later this week. Tensions in Iran and Syria will also lent support to prices. There is no one point
    solution for Euro-zone problems but any unanimous solution will be positive for the market. Trend in
    equity and currency markets will be the key price determining factor and focus will be on Euro-zone and
    US economy. For Euro-zone, focus this week will be on German France meet today, ECB interest rate
    decision on Thursday and EU summit on Friday.
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    05 Dec 2011                                      Energy Weekly

                                                 NATURAL GAS
    HIGHLIGHTS

       •   NYMEX natural gas Jan contract slipped 2.2% last week
       •   Natural gas noted mixed trade amid cool weather forecasts and higher stocks in US
       •   EIA noted a 1 Bcf drop in US working gas stocks as against expectations of 9 Bcf rise
       •   The number of rigs drilling for gas in the U.S. fell by 9 last week to 856 rigs

    MARKET ANALYSIS
    NYMEX natural gas Jan contract noted mixed trade but ended with a 2.2% slide erasing some of the gains
    noted a week ago. UK gas also slipped 2.9% last week marking its fourth weekly decline indicating slack
    demand.

    Natural gas noted mixed cues amid lack of direction in the market. Expectations of higher heating demand
    during winter is supporting prices however lack of persistent cold weather has kept a check on the upside.
    Near term forecasts indicate cooler weather in some parts of US.

    Also weighing on prices are higher stocks in storage and robust production. EIA last week noted an
    unexpected decline in US working gas stocks however this was much smaller than average drop seen for
    this time of the year. The smaller than average drop widened the surplus over 5-year average stocks. US
    production is expected to hit record high level this year however lower prices have dented market
    sentiments.

    Overall, natural gas lacks direction due to mixed cues. Supporting prices are expectations that heating
    demand will be higher during winters however higher stocks in US storage has limited upside in prices.
    While weather related demand will determine further direction in natural gas prices, any sharp rally will be
    limited by higher stocks and robust production in US. Concerns about US economy will also weigh on gas
    prices.

    STOCKS, RIG ACTIVITY AND PRODUCTION
    EIA weekly report noted a 1 Bcf decline in US working gas stocks as against expectations of a 9 Bcf
    increase. The withdrawal was however considerably smaller than both the 5-year average withdrawal of 29
    Bcf and last year's 21 Bcf draw seen this time of the year. The smaller than average decline also widened
    the surplus over 5-year average stock level. Stocks now stand at 3851 Bcf which is 1.1% higher than
    stocks same period last year and 7.3% higher than 5-year average stocks for this time of the year. While
    stocks are high, EIA expects US natural gas production to remain higher. In its November outlook, EIA
    lowered its outlook for 2011 marketed gas production for the first time in six months but still expects
    output this year to average a record high 65.6 Bcf per day, or 3.8 Bcfpd, 6.1% above last year's levels.
    While production remains high, the sharp decline in price has affected production interest. The number of
    rigs drilling for natural gas in US has fallen by 78 rigs in last five weeks to 856 rigs, the lowest level seen
    since Jan 2010. Rig activity is price sensitive and sustained lower price may further reduce rig counts.

    SPECULATIVE INTEREST
    The mixed trend in natural gas price was coupled with a marginal decline in net short position. As per US
    CFTC report for the week ended Nov.29, non-commercial traders for natural gas futures cut long and short
    positions by 5.5% and 2.9% respectively. Net short position fell by 0.3% to 170512 contracts

    OUTLOOK

    Natural gas continues to remain under pressure as higher stocks in US storage outweighs expectations of
    higher demand during winter. While prices may remain under pressure, a sustained decline in unlikely.
    Higher heating demand due to cold weather in winter will support prices. Also the sharp decline in rig count
    in last few weeks will also weigh on prices. While supply overhang in US will continue to weigh on prices,
    further direction will be determined by weather related demand. Overall, we expect natural gas to remain
    in a broad range but buying on dips could be the strategy for this week. Focus this week will also be on
    EIA’s outlook on US production.

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    05 Dec 2011                                     Energy Weekly

      Price Movement on NYMEX last week
               Commodity                Close               change            %           High             Low
            Crude Oil ($/bbl)         100.96                 4.19            4.3         101.75           97.13
         Natural Gas ($/mmBtu)         3.584                -0.081           -2.2         3.72            3.521
          Gasoline ($cents/gal)       261.62                 16.73           6.8          265             247.02
         Heating Oil ($cents/gal)        299                 6.27            2.1         305.36           294.22

      Price Movement on ICE last week
               Commodity                   Close            change           %            High             Low
         Brent Crude Oil ($/bbl)          109.94             3.54            3.3         112.03           106.63

      Price Movement on MCX last week
               Commodity                  Close             change            %          High               Low
            Crude Oil (Rs/bbl)            5175                107             2.1        5274              5068
        Natural Gas (Rs/mmBtu)            185.4              -5.7            -3.0        194.8             183.5

      U.S. CFTC Commitments of Traders (COT) Futures Only Report (29 Nov 2011)
      Non-commercial           Long            Short        Net position      Change                Change (%)
      Position (contracts)
      Crude Oil              308,005         151,526          156479            -867                      -0.6
      Natural Gas            167,919         338,431         -170512             509                      -0.3
      Gasoline               74,352           24,839          49513            -2492                      -4.8
      Heating Oil            52,991           33,821          19170            -1736                      -8.3

      U.S. EIA Weekly Petroleum Inventory Report (25 Nov 2011)
       (1000 barrels)      Stocks    change     %    Expectation      Demand        Change%    Imports    Change%
          Crude Oil       334747      3932    1.19       -188          17946          -3.44     9061        8.92
           Gasoline       209847       213    0.10       1544           8769          2.06       619       -35.25
      Distillate Fuel Oil 138489      5526    4.16      -1056           3240         -20.37      150        11.11

      U.S. Weekly Natural Gas Storage Report
      Billion Cubic Feet (BCF)  Date    Stocks     Change    change over last year    change over 5-year average
      Natural Gas              18-Nov 3,852          +9            +0.6%                       +6.4%
      Natural Gas              25-Nov 3,851          -1            +1.1%                       +7.3%

      U.S. Economic Calendar   (28th Nov to 2nd Dec)
        Date        IST                  Release              For        Actual        Consensus           Prior
      Nov-28       2030             New Home Sales            Oct         307K            312K             303K
      Nov-29       1930        Case-Shiller 20-city Index     Sep        -3.6%          -3.00%            -3.80%
      Nov-29       2030          Consumer Confidence          Nov          56             42.5             40.9
      Nov-30       1845         ADP Employment Change         Nov         206K            125K             130K
      Nov-30       2015               Chicago PMI             Nov         62.6            57.5             58.4
      Nov-30       2030           Pending Home Sales          Sep        10.4%           0.10%            -4.60%
      Dec-01       0030             Fed's Beige Book          Nov
      Dec-01       1900               Initial Claims         Nov-26      402K            390K              396K
      Dec-01       2030                ISM Index              Nov        52.7             51               50.8
      Dec-02       1900             Nonfarm Payrolls          Nov        120K            123K              100K
      Dec-02       1900         Nonfarm Private Payrolls      Nov        140K            141K              117K
      Dec-02       1900           Unemployment Rate           Nov        8.6%           9.00%             9.00%

      Other Markets              Close             change              %              High                 Low
         DJIA INDEX             12019.4            787.62             7.0            12146.7             11232.2
        DOLLAR INDEX             78.68             -0.927             -1.2           79.401              77.923
             EURO               1.3402              0.017             1.3            1.3548              1.3257

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    05 Dec 2011                                                         Energy Weekly
                                                                                     Forward Curve
    NYMEX crude oil contract spread chart (price in $/bb)                            The first four months of WTI forward curve
                                                                                     continue to be in Contango while farther
      102                                                                   102      month contracts are in backwardation. The 1st
                                                                                     month contract ended at a discount of
      101                                                                   101
                                                                                     $0.13/bbl over second month contract as
      100                                                                   100
                                                                                     against a discount of $0.14/bbl a week ago.
       99                                                                   99       The premium of 1st month contract over 12th
       98                                                                   98       month contract widened to $1.83/bbl as
       97                                                                   97       against $1.51/bbl. The backwardation is
                                                                                     widening amid anticipation that supply
       96                                                                   96
                                                                                     overhang in US will ease after stocks are
       95                                                                   95
                                                                                     removed from Cushing. Higher demand during
              1M   2M   3M   4M   5M   6M   7M    8M   9M 10M 11M 12M
                                                                                     winter is also lending support to prices.
                    Monday              Tuesday             W ednesday
                    Thursday            Friday                                       However stocks are still high while demand is
                                                                                     tepid and this may keep the spread from
                                                                                     widening substantially.


                                                       MCX Crude oil spread matrix (Rs/bbl)

                                                  Jan          Feb          Mar          Apr     May
                                  Dec             -10          -18          -26          -44     -65
                                  Jan              -            -8          -16          -34     -55
                                  Feb                            -           -8          -26     -47
                                  Mar                                         -          -18     -39
                                  Apr                                                     -      -21
                                  May                                                             -
                                                                                         Forward Curve
    NYMEX natural gas spread chart (price in $/mmBtu)
                                                                                         Natural gas forward curve shifted rightward as
                                                                                         prices shed some of their recent gains. The
      4.300                                                              4.300
                                                                                         spread between 1st and 2nd month contract
      4.100                                                              4.100           narrowed       to     $0.029/mmBtu        from
                                                                                         $0.123/mmBtu a week ago. The spread
      3.900                                                              3.900
                                                                                         between 1st and 12th month contract widened
      3.700                                                              3.700           to $0.713/mmBtu from $0.513/mmBtu a week
                                                                                         ago. The spread narrowed as Dec. contract
      3.500                                                              3.500           expired at sharp discount to Jan contract. The
      3.300                                                              3.300
                                                                                         spread may narrow as higher demand during
               1M 2M 3M 4M 5M 6M 7M 8M 9M 10M 11M 12M                                    winter will lead to drop in US working gas
                   Monday               Tuesday            W ednesday                    stocks. However supply overhang persists and
                   Thursday             Friday                                           will keep a check on upside in price.




                                                  MCX Natural gas spread matrix (Rs/mmBtu)

                                                                     Jan          Feb
                                                         Dec         -3.8         -5.6
                                                         Jan           -          -1.8
                                                         Feb                        -



Energy Weekly                                Please See Disclaimer on the Last Page                                                 5
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    05 Dec 2011                                      Energy Weekly
    OUTLOOK

    CRUDE OIL- Crude oil may shed some of recent gains as uncertainty persists about major economies.
    However we may not see a major sell-off ahead of outcome of EU summit later in the week. Also hopes that
    ECB will cut interest will support prices. This along with tensions in Middle-east will support crude oil prices
    and buying on dips could be the strategy for this week. Focus this week will be on meet outcome of Germany
    and France meet today, ECB decision on Thursday and EU summit on Friday.

    NATURAL GAS- Natural gas may continue to move in a broad range as support from higher during winter will
    be counterbalanced by higher stocks in US storage. However cold weather forecasts in US and drop in rig
    count will support prices and buying on dips could be considered for this week. Focus will continue to be on
    weather related demand.


    TECHNICAL LEVELS
                                QUOTE             SUPPORT         SUPPORT        RESISTANCE           RESISTANCE
      NYMEX Crude Oil          USD/BBL               95               98            102.8                104.5
     NYMEX Natural gas        USD/MMBTU              3.2             3.4            3.75                 3.88
       MCX Crude Oil            RS/BBL              4950            5050            5265                 5350
      MCX Natural gas         RS/BMMBTU             176              181             192                  199

    ECONOMIC CALENDAR
      Date           IST         Currency                         Data                     Forecast      Previous
     Dec-05        14:30           EUR                    Final Services PMI                 47.8          47.8
                   15:00           EUR               Sentix Investor Confidence             -19.3          -21.2
                   15:00           GBP                        Services PMI                   50.9          51.3
                   15:30           EUR                     Retail Sales m/m                 0.20%        -0.60%
                   20:30           USD              ISM Non-Manufacturing PMI                53.6           52.9
                   20:30           USD                   Factory Orders m/m                -0.20%         0.30%
     Dec-06        15:30           EUR                     Revised GDP q/q                  0.20%         0.20%
                   16:30           EUR              German Factory Orders m/m               1.10%        -4.30%
     Dec-07        15:00           GBP             Manufacturing Production m/m            -0.10%         0.20%
                   15:00           GBP               Industrial Production m/m             -0.30%         0.00%
                   16:30           EUR           German Industrial Production m/m           0.30%        -2.70%
     Dec-08        17:30           GBP                  Asset Purchase Facility              275B          275B
                   17:30           GBP                    Official Bank Rate                0.50%         0.50%
                   18:15           EUR                    Minimum Bid Rate                  1.25%         1.25%
                   19:00           EUR                  ECB Press Conference
                   19:00           USD                  Unemployment Claims                   398K         402K
     Dec-09         5:20           JPY                       Final GDP q/q                   1.20%        1.50%
                    7:00           CNY                          CPI y/y                     4.60%         5.50%
                    7:00           CNY                          PPI y/y                     3.30%         5.00%
                 Tentative         CNY                 Industrial Production y/y            12.80%        13.20%
                 Tentative         CNY                      Retail Sales y/y                16.90%        17.20%
                   All Day         EUR                   EU Economic Summit
                   19:00           USD                       Trade Balance                  -43.0B        -43.1B
                   20:25           USD            Prelim UoM Consumer Sentiment              65.8          64.1
    Source: Forex Factory

    ENERGY CALENDAR
      DATE     IST                                         DATA                                              FOR
     Dec 06                                   EIA Short- term Energy Outlook                                 Dec
     Dec 07   0300                    API US Weekly Petroleum Product Inventory Report                      Dec 2
     Dec 07   2100                    US DOE Weekly Petroleum Product Inventory Report                      Dec 2
     Dec 08   2100                       US DOE Weekly Natural Gas Inventory Report                         Dec 2

Energy Weekly                      Please See Disclaimer on the Last Page                                       6
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    05 Dec 2011                                                                          Energy Weekly




                    Faiyaz Hudani                                                                           Dharmesh Bhatia
                    Sr. Research Analyst- Spices, Edible Oil                                                Associate Vice-President- Technical Research
                    faiyaz.hudani@kotakcommodities.com                                                      dharmesh.bhatia@kotakcommodities.com
                    +91-22-66528837                                                                         +91-22-66528846




                    Sudha R. Acharya                                                                        Amit Sajeja
                    Research analyst- Edible Oil, Pulses                                                    Sr. Research Analyst- Technical Analyst
                    sudha.acharya@kotakcommodities.com                                                      amit.sajeja@kotakcommodities.com
                    +91-22-66528809                                                                         +91-22-66528847




                    Madhavi Mehta                                                                           Ajay Baheti
                    Research analyst- Energy, Bullion                                                       Associate Research- Technical Analyst
                    madhavi.mehta@kotakcommodities.com                                                      ajay.baheti@kotakcommodities.com
                    +91-22-66528857                                                                         +91-22-66528845




                    Priyanka Jhaveri
                    Research analyst- Base Metals
                    priyanka.jhaveri@kotakcommodities.com
                    +91-22-66528848




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