26 Sept 2011                                    Energy Weekly

    26 Sept 2011                                                             FOR PRIVATE CIRCULATION ONLY

                                                 CRUDE OIL

       •   NYMEX crude falls more than $1 Monday amid choppiness in equity markets and stronger US dollar
       •   NYMEX crude fell 9.2% last week making its first decline in five weeks
       •   Crude plunged last week amid a sell-off across financial markets
       •   Reuters/CRB commodities index fell 8.4% last week amid a selling rout in commodities market
       •   US DJIA index plunged 6.4% last week, biggest weekly fall since Oct 2008
       •   The US dollar index rose 2.3% last week marking its third gain in last four weeks
       •   EIA noted a 7.336 mn bbl decline in US crude oil stocks as against forecast of 0.7 mn bbl drop
       •   Fed kept interest rate unchanged at 0-0.25% but stated significant downside risks to the economy
       •   Fed will launch a $400 bn program to twist balance sheet towards long term securities
       •   IMF cuts global growth forecast to 4% for 2012 from 4.5%
       •   S&P cut Italy's sovereign debt rating to A from A+
       •   G20 pledges powerful response to challenges facing the global economy
       •   ICE Brent crude Nov contract ended at premium of $24.12/bbl on Friday as against $24.04/bbl a
           week earlier
       •   The number of rigs drilling for oil in the U.S. rose by 9 to 1071 rigs, as per Baker Hughes report

    NYMEX crude noted mixed trade Monday extending the volatility seen last week. Crude oil plunged 9.2%
    last week marking its first decline in five weeks. Crude oil moved in a range of $10.44/bbl last week
    (87.99-77.55/bbl) the widest range seen since the week ended Aug.12.

    Crude oil fell last week weighed down by sharp decline in equity markets and strength in US dollar. Crude
    oil started the week on a weak note as rating downgrade for Italy fuelled concerns about Euro-zone
    economies and pushed US dollar higher against the Euro. Crude oil however recovered ahead of FOMC
    meet as expectations of supportive measures by Fed pulled US dollar lower. Crude oil however plunged
    sharply after the Fed meet as the central bank warned about downside risk to the economy. Extending the
    losses further, crude oil plunged more than $2 Friday but ended with modest decline.

    Financial markets plunged after Fed’s meet failed to meet market expectations. The US Fed announced the
    much-expected Operation Twist to rebalance its balance sheet however, the central bank noted significant
    downside risk to the economy. This is shift from its previous stance of downside risk to the economy. The
    downbeat outlook by US Fed and disappointment that Fed did not announce any additional measures
    initiated a sell-off across markets. Commodities came under pressure further as US dollar strengthened.
    The US currency gained sharply as Fed’s decision to not infuse any more liquidity lent support. The dollar
    also gained support from safe haven demand as sell-off across markets induced risk aversion. Euro came
    under pressure also amid increasing concerns about health of Euro-zone economies and as recent ECB
    meet indicated a shift in policy stance.

    Concerns about US economy were accentuated by mixed economic data and as Moody’s downgraded three
    American banks. Concerns about Euro-zone economies were high following Italian rating downgrade,
    mixed economic data and delayed talks about another trance of EU and IMF loan. Meanwhile IMF lowered
    global economic growth forecast for next year.

    Financial markets in general reacted negatively to Fed’s downbeat outlook however recent economic data
    already pointed towards slowdown in recovery. Euro-zone debt problems continue to intensify however EU
    members will continue to intervene to rebuild confidence. Overall, crude oil has plunged sharply amid sell-
    off across financial market. Near term trend will continue to be determined by direction in equity and
    currency markets and a sharp recovery is unlikely unless markets stabilize. Focus will continue to be US
    economic data and talks about Greek loan tranche.

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    26 Sept 2011                                     Energy Weekly
    Weekly inventory report released last week was mixed. API noted an unexpected increase in US crude oil
    stocks. EIA, on the other hand, noted a much bigger than expected decline in US crude oil stocks. EIA
    noted a 7.336 mn bbl decline in US crude oil stocks as against expectations of a 0.7 mn bbl decline. Crude
    stocks fell amid a 2.2% decline in imports and 1.3% increase in refinery usage. While crude stocks fell, EIA
    noted a 3.295 mn bbl increase in gasoline stocks as against forecast of a 1.2 mn bbl decline. Distillate
    stocks fell by 0.874 mn bbl as against forecast of a 1 mn bbl decline. Meanwhile, demand improved last
    week. Crude oil demand, as measured by total product supplied averaged 19.024 mn bpd which is 2%
    higher than last week. Gasoline demand rose 0.1% to average 8.858 mn bpd while distillate demand rose
    5.9% to average 3.875 mn bpd. Overall, US crude oil stocks are above the upper limit of the average
    range for this time of the year while gasoline and distillate stocks are in the upper range for this time of
    year. Higher stocks in US storage and concerns about health of the US economy have continued to weigh
    on WTI prices, while Brent crude is gaining support from tighter North Sea markets and robust Asian
    demand. This has resulted in wide gap between WTI and Brent prices. The spread has narrowed from
    recent highs but is still near $24/bbl level. We expect the spread to narrow as expectations that Libyan oil
    supplies may resume soon will limit upside in Brent prices. Also US crude oil stocks at Cushing, the delivery
    terminal gave fallen for past few weeks.

    The US dollar index rose 2.3% last week marking its third weekly gain in four weeks. The US dollar gained
    2.2% against the Euro and 2% against the Pound. Japanese yen noted a marginal 0.2% decline against the
    US dollar while Swiss Franc fell by 4.6% last week. The US dollar rose sharply against the Euro last week
    as rating downgrade for Italy and uncertainty about next tranche of EU-IMF loan for Greece fuelled
    concerns about health of the economy. The greenback rose sharply after the Fed meet as the central bank
    officials announced a plan to rebalance its balance sheet but did not infuse more liquidity in the market.
    Meanwhile, Fed’s downbeat economic outlook for US economy triggered a sell-off across markets
    increasing dollar’s demand against riskier currencies. The intervention by Swiss National Bank has also
    reduces Franc’s demand as a safe haven asset. The British Pound came under pressure also as BOE
    minutes indicated that central bank officials are willing to consider supportive measures for the economy.
    The US dollar has gained sharply in past few weeks however further rally will be limited by weakening
    outlook for US economy.

    US economic data released last week was mixed. Building permits, existing home sales and leading
    indicators was better than expectations while housing starts, weekly jobless claims and NAHB housing
    markets failed to meet market expectations. Euro-zone economic data was largely disappointing raising
    concerns about the economy. German and Euro-zone manufacturing PMI, Euro-zone industrial orders and
    consumer confidence failed to meet market expectations. German ZEW economic sentiment was however
    better than expectations. UK economic calendar was largely empty but consumer confidence was slightly
    better than expectations. China’s HSBC manufacturing PMI also indicated drop in growth.

    The recent decline in crude oil price was coupled with a decline in net long position. As per the US CFTC
    report for the week ended Sept.20, non-commercial traders for crude futures cut long and short positions
    by 2.4% and 1.6% respectively. Net long position was cut by 3.3% to 159965 contracts. This is the first
    decline in net long position in five weeks.

    Crude oil trades weaker today as financial markets remain under pressure amid weakening outlook for US
    and Euro-zone economies. Crude oil will continue to take cues from equity and currency markets and any
    sharp recovery is unlikely unless market stabilizes. The recent downward momentum could pull crude oil
    prices till $75/bbl however we believe that prices should stabilize then. Focus will continue to be on
    situation in US and Euro-zone. For US, focus will be on trend in equity markets and economic data. For
    Euro-zone focus will be on talks about changes in EU aid fund and Greek’s next EU-IMF loan tranche. Also
    in focus will be trend in European bond yields. Key events this week include US GDP and consumer
    confidence data, Bernanke’s speech. On Euro-front, focus will be on Italian bond sale and vote on changes
    in EFSF fund. While focus remains on demand situation amid concerns about US economy, focus will also
    be on situation in the Middle-east as tensions prevail in Syria and Libya.
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    26 Sept 2011                                      Energy Weekly

                                                 NATURAL GAS

       •   NYMEX natural gas fell 2.8% last week marking its second weekly decline
       •   Natural gas fell last week weighed down by mild weather forecasts and concerns about the economy
       •   EIA notes an 89 Bcf increase in US working gas stocks as against expectations of 91 Bcf increase
       •   Natural gas speculators raised net short position for the third consecutive week
       •   The number of rigs drilling for gas in the U.S. was unchanged at 912 last week

    NYMEX natural gas ended lower for four of five trading sessions last week and ended with a decline of
    2.8% marking its second weekly fall. Natural gas fell as low as $3.662/mmBtu yesterday, the lowest level
    seen since Oct.2010.

    Natural gas came under pressure weighed down mild weather forecasts, concerns about health of US
    economy and expectations of higher production in the US. Storm activity has also weakened in the Atlantic
    and none of the weather patterns are seen as a threat to energy infrastructure in the Gulf of Mexico.
    Selling pressure in crude oil and other energy futures also weighed on natural gas prices.

    Natural gas hit the lowest level since Dec. last Thursday amid a sell-off across commodities following Fed’s
    downbeat outlook for US economy. Natural gas however noted some recovery after EIA noted a slightly
    smaller than expected increase in US working gas stocks.

    Overall, natural gas remains under pressure weighed down by mild weather forecasts, weakening outlook
    for the economy and expectations of higher production in US. Natural gas speculators have build on huge
    short positions and bouts of short covering could result in some rallies in prices. However a sharp rise is
    unlikely in the near term. Natural gas is likely to enter a lull demand phase as summer nears an end and it
    will be some time before winter demand increases.

    EIA noted an 89 Bcf increase in US working gas stocks as against expectations of a 91 Bcf increase. The
    injection was however greater than the 5-year average injection of 72 Bcf and last year’s injection of 78
    Bcf. Stocks now stand at 3201 Bcf which is 3.9% lower than stocks same period last year and 1.1% lower
    than 5-year average for this time of the year. The deficit over 5-year average stocks narrowed last week.
    While stock deficit is narrowing, EIA expects US natural gas production to remain high. EIA expect
    marketed production to rise by 4 billion cubic feet per day to a record 65.8 Bcfpd, up from its previous
    estimate of a 3.68 Bcfpd increase. The dip in price did affect production interest last week. The number of
    rigs drilling for natural gas was unchanged at 912 rigs last week after rising by 20 rigs a week ago. Lower
    prices will keep a check on the upside in rig count.

    The recent decline in natural gas price has been coupled with an increase in net short position. As per US
    CFTC report for the week ended Sept 20, non-commercial traders for natural gas futures raised long and
    short position by 3.2% and 3.9% respectively. Net short position rose by 4.3% to 191690 contracts. High
    net short position could result in some short covering in case of correction.


    Natural gas trades weaker weighed down by mixed weather forecasts, expectations of higher production in
    US and concerns about health of US economy. No major storm activity has been seen in last few days in
    last few days reducing concerns about supply outage. Natural gas is also likely to enter a lull demand
    phase with the end of summer season. While we could see some short covering ahead of expiration of Oct
    contract, a sustained rise is difficult and selling on rise in the strategy for natural gas for this week. Focus
    will continue to be on weather forecasts and storm activity in the Atlantic. Apart from it, focus will also be
    on weekly inventory report and US economic data.

Energy Weekly                      Please See Disclaimer on the Last Page                                         3
    26 Sept 2011                                  Energy Weekly

      Price Movement on NYMEX last week
               Commodity                Close             change             %             High             Low
            Crude Oil ($/bbl)          79.85               -8.11            -9.2          87.99            77.55
         Natural Gas ($/mmBtu)         3.701              -0.108            -2.8          3.859            3.662
          Gasoline ($cents/gal)       255.47              -22.94            -8.2          278.24           253.55
         Heating Oil ($cents/gal)     279.58              -21.31            -7.1          300.62           279.29

      Price Movement on ICE last week
               Commodity                 Close            change             %             High             Low
         Brent Crude Oil ($/bbl)        103.97             -8.25            -7.4          112.44           103.43

      Price Movement on MCX last week
               Commodity                Close             change             %            High               Low
            Crude Oil (Rs/bbl)          4156                89               2.2          4301              4007
        Natural Gas (Rs/mmBtu)          181.8              -2.2             -1.2          195.4             180.1

      U.S. CFTC Commitments of Traders (COT) Futures Only Report (20 Sept 2011)
      Non-commercial           Long            Short        Net position      Change                 Change (%)
      Position (contracts)
      Crude Oil              327,050         167,085          159965           -5430                       -3.3
      Natural Gas            147,731         339,421         -191690           -7990                       4.3
      Gasoline               70,908           30,409          40499            -3343                       -7.6
      Heating Oil            48,950           33,662          15288             6583                       75.6

      U.S. EIA Weekly Petroleum Inventory Report (16 Sept 2011)
       (1000 barrels)      Stocks    change     %     Expectation    Demand          Change%    Imports    Change%
          Crude Oil       339048      -7336 -2.12        700          19024            1.98      8351        -2.24
           Gasoline       214075       3295   1.56       1200          8858            0.11       692        5.01
      Distillate Fuel Oil 157606       -874   -0.55      1000          3875            5.93       158        2.60

      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              09-Sept 3,112      +87             -4.3%                          -1.6%
      Natural Gas              16-Sept 3,201      +89             -3.9%                          -1.1%

      U.S. Economic Calendar (19 Sep to 23 Sept)
       Date        IST                 Release                For           Actual      Consensus           Prior
      Sep-19      1930      NAHB Housing Market Index        Sep              14            15               15
      Sep-20      1800             Housing Starts            Aug             571K          590K             601K
      Sep-20      1800            Building Permits           Aug             620K          585K             601K
      Sep-21      1930          Existing Home Sales          Aug            5.03M         4.70M            4.67M
      Sep-21      2345          FOMC Rate Decision           Sep            0.25%         0.25%            0.25%
      Sep-22      1800              Initial Claims          Sep-17           423K          418K             432K
      Sep-22      1800           Continuing Claims          09-Oct          3727K         3730K            3755K
      Sep-22      1930           Leading Indicators          Aug            0.3%          0.10%            0.50%

      Other Markets            Close             change               %                High                 Low
         DJIA INDEX           10771.5             -737.6             -6.4             11550.2             10597.1
        DOLLAR INDEX           78.30               1.758             2.3              78.798               76.79
             EURO             1.3496             -0.0301             -2.2             1.3788              1.3382

Energy Weekly                    Please See Disclaimer on the Last Page                                             4
    26 Sept 2011                                                        Energy Weekly
                                                                                     Forward Curve
    NYMEX crude oil contract spread chart (price in $/bb)
                                                                                     Crude oil plunged sharply last week as is
      90                                                                    90       evident from rightward shift of the forward
                                                                                     curve. The spread between 1st and 2nd month
      88                                                                    88
                                                                                     widened from $0.22/bbl to $0.27/bbl last
      86                                                                    86       week. The gap between 1st month and 12th
                                                                                     month contract widened to $3.25/bbl from
      84                                                                    84
                                                                                     $2.75/bbl. The spread widened as crude oil
      82                                                                    82       prices fell sharply last week. We expect the
      80                                                                    80       spread between 1st and 2nd month contract to
                                                                                     widen to around $0.45/bbl level. The spread
      78                                                                    78
                                                                                     between near and far month contract may
           1M    2M    3M   4M   5M    6M   7M    8M    9M 10M 11M 12M
                                                                                     widen around $4/bbl. Demand concerns will
                      Monday            Tuesday             W ednesday
                      Thursday          Friday                                       keep a check on WTI prices and this could lead
                                                                                     to widening of spread.

                                                       MCX Crude oil spread matrix (Rs/bbl)

                                                  Nov          Dec           Jan      Feb         Mar
                                 Oct              -33          -66          -106     -118        -180
                                 Nov               -           -33           -73      -85        -147
                                 Dec                            -            -40      -52        -114
                                 Jan                                          -       -12         -74
                                 Feb                                                   -          -62
                                 Mar                                                               -
                                                                                         Forward Curve
    NYMEX natural gas spread chart (price in $/mmBtu)
                                                                                         Natural gas fell last week as is evident from
      4.500                                                              4.500           rightward shift of the forward curve. The
      4.400                                                              4.400
                                                                                         forward curve remains in deep Contango as
      4.300                                                              4.300
                                                                                         summer related demand is expected to wane
      4.200                                                              4.200
                                                                                         and winter demand may not be seen before
      4.100                                                              4.100
                                                                                         Nov. The spread between 1st and 2nd month
      4.000                                                              4.000
                                                                                         contract narrowed to $0.0.065/mmBtu from
      3.900                                                              3.900
                                                                                         $0.113/mmBtu a week ago. The spread
      3.800                                                              3.800
                                                                                         between 1st and 12th month contract narrowed
      3.700                                                              3.700
      3.600                                                              3.600
                                                                                         to $0.587/mmBtu from $0.595/mmBtu. The
                1M 2M 3M 4M 5M 6M 7M 8M 9M 10M 11M 12M                                   spread has widened substantially as prices
                   Monday              Tuesday             W ednesday                    remain under pressure due to higher
                   Thursday            Friday                                            production and slack demand. The spread
                                                                                         could narrow as market players’ shift to winter
                                                                                         month contracts following the expiration of
                                                                                         October contract.

                                                 MCX Natural gas spread matrix (Rs/mmBtu)

                                                                     Oct          Nov
                                                         Sep         -4.8        -18.2
                                                         Oct           -         -13.4
                                                         Nov                       -

Energy Weekly                                Please See Disclaimer on the Last Page                                                  5
    26 Sept 2011                                   Energy Weekly

    CRUDE OIL- Crude oil is likely to remain under pressure in the near term and trend in equity and currency
    market will be the key price determining factor. However we do not expect a sustained decline and could see
    a recovery later in the week. Focus this week will be on US GDP and consumer confidence data, talks about
    Greek loan tranche and Italian bond sale.

    NATURAL GAS- Natural gas will remain under pressure amid mixed weather forecasts, higher production in
    US and concerns about health of US economy. Sell on rise is the strategy for natural gas this week. Focus
    will be on weather forecasts, storm activity in the Atlantic and US economic data.

                               QUOTE            SUPPORT        SUPPORT        RESISTANCE           RESISTANCE
      NYMEX Crude Oil         USD/BBL             71.5            75              85                   90
     NYMEX Natural gas       USD/MMBTU            3.54           3.63             3.8                 3.94
       MCX Crude Oil           RS/BBL             3675           3825            4200                 4425
      MCX Natural gas        RS/BMMBTU            177             180             187                  192

       Date          IST       Currency                       Data                      Forecast      Previous
      Sep-26       19:30         USD                    New Home Sales                   296K           298K
      Sep-27       11:30         EUR            GfK German Consumer Climate                5.1           5.2
                   18:30         USD             S&P/CS Composite-20 HPI y/y            -4.40%        -4.50%
                   19:30         USD               CB Consumer Confidence                 46.4          44.5
      Sep-28       All Day       EUR                German Prelim CPI m/m               -0.10%         0.00%
                   18:00         USD              Durable Goods Orders m/m              -0.40%         4.10%
      Sep-29        2:30         USD            Fed Chairman Bernanke Speaks
                   13:25         EUR            German Unemployment Change                -9K             -8K
                   18:00         USD                 Unemployment Claims                 420K            423K
                   18:00         USD                     Final GDP q/q                  1.20%          1.00%
                   19:30         USD               Pending Home Sales m/m               -1.60%         -1.30%
      Sep-30        4:31         GBP               GfK Consumer Confidence                -33             -31
                    5:20         JPY           Prelim Industrial Production m/m         1.50%          0.40%
                    8:00         CNY             HSBC Final Manufacturing PMI                            49.4
                   11:30         EUR               German Retail Sales m/m              -0.40%          0.30%
                   14:30         EUR                 CPI Flash Estimate y/y              2.50%          2.50%
                   14:30         EUR                  Unemployment Rate                 10.00%         10.00%
                   18:00         USD                Personal Spending m/m                0.20%          0.80%
                   19:15         USD                      Chicago PMI                      56            56.5
                   19:25         USD           Revised UoM Consumer Sentiment             57.9           57.8
      Oct-01        6:30         CNY                   Manufacturing PMI                  50.7           50.9
    Source: Forex Factory

     DATE      IST                                       DATA                                            FOR
    Sept 28   0200                  API US Weekly Petroleum Product Inventory Report                    Sept 23
    Sept 28   2030                  US DOE Weekly Petroleum Product Inventory Report                    Sept 23
    Sept 29   2000                     US DOE Weekly Natural Gas Inventory Report                       Sept 23

Energy Weekly                    Please See Disclaimer on the Last Page                                     6
    26 Sept 2011                                                                         Energy Weekly

                    Faiyaz Hudani                                                                           Dharmesh Bhatia
                    Sr. Research Analyst- Spices, Edible Oil                                                Associate Vice-President- Technical Research
                    +91-22-66528837                                                                         +91-22-66528846

                    Sudha R. Acharya                                                                        Amit Sajeja
                    Research analyst- Edible Oil, Pulses                                                    Sr. Research Analyst- Technical Analyst
                    +91-22-66528809                                                                         +91-22-66528847

                    Madhavi Mehta                                                                           Ajay Baheti
                    Research analyst- Energy, Bullion                                                       Associate Research- Technical Analyst
                    +91-22-66528857                                                                         +91-22-66528845

                    Priyanka Jhaveri
                    Research analyst- Base Metals

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