FOR PRIVATE CIRCULATION ONLY 12 September 2012 MARKET HIGHLIGHTS

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1 FOR PRIVATE CIRCULATION ONLY 12 September 2012 MARKET HIGHLIGHTS NYMEX crude hold near $97/bbl Wednesday after 0.7% gain yesterday; Weakness in US dollar is supporting crude price The euro trades higher against the US dollar today after 0.8% gain yesterday Most Asian equity markets trade higher after modest gains in US market yesterday About 4.2% of crude oil production in Gulf of Mexico is still shut API notes a mn bbl increase in US crude stocks as against forecast of 2.6 mn bbl decline Moody s warns that US may lose its Aaa credit rating if it fails to reduce debt China will maintain a proactive fiscal policy and prudent monetary policy, says Chinese Premier Jiabao German court says it will not delay ruling on ratification of the ESM US trade deficit stood at $42 billion in July as against $41.9 bn a month ago US EIA and OPEC raise their global crude oil demand forecast for next year The premium of ICE Brent crude Oct contract over NYMEX crude stood at $18.23/bbl on Tuesday as against $18.27/bbl a day earlier Focus today German court ruling on ESM, Italy bond sale, UK jobless claims, euro industrial production, US EIA weekly inventory report, IEA monthly outlook CRUDE OIL MCX Crude Oil (Rs/bbl) as on 11-Sep Contract High Low Close Change % Change Sep Oct Nov NYMEX WTI Crude Oil (USD/barrel) as on 11-Sep Oct Nov Dec ICE Brent Crude Oil (USD/barrel) Oct Nov Dec NYMEX Heating Oil (USD cents/gallon) Oct Nov Dec NYMEX Gasoline (USD cents/gallon) Oct Nov Dec MARKET OUTLOOK MCX Crude may note some gains tracking cues from international exchange however upside is limited. NYMEX crude trades above $97/bbl holding on to recent gains. Supporting crude price is weakness in US dollar amid expectations of additional measures by US Fed and concerns about US credit rating. Euro is also gaining support from recent ECB bond purchase announcement and expectations that Germany may rule in favor of the euro-aid fund. However weighing on price is API report which noted an unexpected increase in US crude oil stocks. Also weighing on price is demand concerns amid uncertainty about health of major economies. Focus today will be on German court ruling on ESM, Italian bond sale, UK jobless and euro-zone industrial production data. Also in focus will be US EIA weekly inventory report and IEA s monthly outlook. Last Close Support Resistance Trend Positive Energy Daily Please See Disclaimer on the Last Page 1

2 NYMEX crude trades in a narrow range near $97/bbl Wednesday after a 0.7% gain yesterday which marked its fifth consecutive gain. While crude ended higher, it moved in a narrow range of $1.23/bbl ($ /bbl). Crude oil trades higher supported by weakness in US dollar against major currencies and especially euro. Hopes of monetary easing by major banks is also supporting crude price. However weighing on crude price is API report which noted an unexpected increase in US crude oil stocks. The euro rose as high as against the US dollar today, the highest level seen since May 14. Most Asian equity markets are trading higher today after a modest rise in US equity market yesterday. Market sentiments yesterday were boosted by optimism that German court will rule in favour of the European Stability Mechanism. Germany is arguing whether its participation in the European Stability Mechanism, the permanent euro bailout fund, is compatible with constitution. Hopes of a positive outcome rose after Germany's finance minister said he expects the court to issue a pro-european ruling. The German court also confirmed that it wouldn't delay the decision. The euro has been on an upward path since European Central Bank last week announced unlimited bond buying in secondary market to bring down yields in debt ridden nations like Italy and Spain. The US dollar has been under pressure on hopes that US central bank may take additional monetary easing measures to support their economy. The common currency came under further pressure after Moody's warned that the United States may lose its top Aaa credit rating if next year's budget talks do not produce policies that gradually decrease the country's debt Concerns about Chinese demand for commodities rose this week as trade data noted an unexpected decline in total imports. Chinese crude oil imports fell last month indicating weaker demand. China imported million tonnes of crude oil in Aug, down 15.7% from mn tonnes in July While concerns are high about health of Chinese economy, hopes of additional measures by China rose after Chinese Premier said that China will maintain a proactive fiscal policy and prudent monetary policy and said the nation has implemented a series of steps to promote demand. Crude also gained support from optimism about demand as both EIA and OPEC raised their forecast. OPEC raised its 2012 global crude oil demand forecast from mn bpd to mn bpd. US EIA, in its short term energy outlook, raised its 2012 demand estimate from mn bpd to mn bpd. However both warned that risk to global oil demand growth next year remains skewed to the downside. However weighing on price is unexpected increase in US crude oil stocks. API noted a mn bbl decline in US crude oil stocks as against market expectations of a 2.6 mn bbl decline in US crude stocks. API also noted a bigger than expected mn bbl increase in distillate stocks and a bigger than expected 4.16 mn bbl decline in gasoline stocks. Also weighing on price are concerns of release of emergency stocks. US and other advanced nations have hinted on release of emergency stocks to keep a check on price. OPEC members hold mixed views. Saudi Arabia believes that market is well supplied and that there is no need for release of stocks and that it will work to bring down price. Iran on other hand believes that crude oil prices are still low and could rise further. Focus will now be on German court ruling over ESM today. Market players have factored in a positive outcome however focus will be on whether the court puts any condition on Germany s participation in the bailout fund. The European Commission today will presents its proposal for the European Central Bank to take on the role of eurozone bank supervisor however some officials are skeptical that the new arrangement will be in place in time to meet its mid-2013 target date. The US central bank will hold a two day meet on Sept US Fed Chairman s comments at the Jackson Hole summit and weaker US non-farm payrolls data has kept hopes high that Fed may take additional steps to support economy. Overall, crude oil trades higher supported by weakness in US dollar in anticipation that Fed may take additional measures to support the economy. Disappointment from Fed could bring a halt to the recent rise. Apart from Fed meet, focus will be on German court ruling and Greece bailout talks. Also in focus will be weekly US petroleum inventory report and International Energy Agency monthly outlook. Energy Daily Please See Disclaimer on the Last Page 2

3 MARKET HIGHLIGHTS NYMEX gas trades higher Wednesday after 6.4% gain yesterday Forecasts of normal weather in US will limit upside NYMEX natural gas trades higher Wednesday after a sharp 6.4% gain yesterday which marked its second consecutive gain. Natural gas rose as high as $3.031/mmBtu today, the highest level seen since Aug.9. Natural gas has gained almost 15% from recent low of $2.647/mmBtu. Natural gas has risen sharply in last few days on back of some buying interest at lower. Also supporting gas price is sharp drop in US natural gas rig count and higher demand from power sector. Meanwhile, US weekly inventory report is expected to note another smaller than average increase in US gas stocks. The latest data from US EIA data noted that US demand for natural gas rose 12.2% in June from a year earlier to bcf per day, led by the US power sector as electricity generators raised gas use by 25.4%. Natural gas production remains high but is below the record high level set earlier this year. As per EIA data, lower 48 wet gas output in June totaled billion cubic feet per day, down from revised May output of bcf daily. Drop in US rig activity also indicates waning production interest. The number of rigs drilling for natural gas fell to 452 rigs last week, the lowest level seen since EIA last week noted a 28 Bcf increase in US gas stocks as against the 5-year average increase of 60 Bcf for this time of the year. The smaller than average increase was due to production disruption in the Gulf of Mexico due to Hurricane Isaac. Early estimates indicate that EIA may note a 22 Bcf increase in US gas stocks which is lower than the 5- year average increase of 72 Bcf for this time of the year. NATURAL GAS MCX Natural Gas (Rs/mmBtu) Contract High Low Close Change % Change Sep Oct Nov NYMEX Natural Gas (USD/mmBtu) Oct Nov Dec However, weighing on price is near normal weather in US and concerns that cooling demand may ebb further with the end of summer. US weather forecasters, in their six- to 10- day forecast period, see cooler temperatures across US. The forecast for the 11- to 15-day period is also characterized as a bit cooler than expected. Also weighing on gas price are estimates of higher production in US. In its September Short-Term Energy Outlook, the EIA said it expected marketed natural gas production in 2012 to rise by 2.6 billion cubic feet per day to a record bcfd, up from its August outlook that had output this year at bcf daily. Overall, natural gas has witnessed sharp gains in last few days on dip buying however upside will be limited by lower weather related demand and lack of any immediate storm threat. Focus will now shift to EIA weekly inventory report. Also in focus will be US weather forecast, storm activity in the Atlantic and US economic data. MARKET OUTLOOK MCX Natural gas may note some gains tracking cues from international exchange. NYMEX gas trades above $3/mmBtu level today adding to sharp gains noted in last few trading sessions. Supporting gas price is expectations that US weekly inventory report may note another smaller than average increase in stocks. Also supporting price is sharp drop in US natural gas rig count and higher demand from power sector. However upside will be limited by near normal weather in US. Focus will continue to be on US weather, economic data and storm activity in the Atlantic. Last Close Support Resistance Trend Positive Energy Daily Please See Disclaimer on the Last Page 3

4 Price Movement on NYMEX last week Commodity Close Change % High Low Crude Oil ($/bbl) Natural Gas ($/mmbtu) Gasoline (cents/gal) Heating Oil (cents/gal) U.S. CFTC Commitments of Traders (COT) Futures Only Report (04 September 2012) Non-commercial Position (contracts) Long Short Net position Change Change (%) Crude Oil 374, , Natural Gas 246, , Gasoline 107,315 40, Heating Oil 51,468 37, U.S. EIA Weekly Petroleum Inventory Report (31 August 2012) (1000 barrels) Stocks Change % Expectation Demand Change% Imports Change% Crude Oil Gasoline Distillate Fuel Oil U.S. Weekly Natural Gas Storage Report Billion Cubic Feet (BCF) Week Stocks Change Change over last year Change over 5-year average Natural Gas 24-Aug 3, % +12.0% Natural Gas 31-Aug 3, % +10.7% Comparison of IEA, EIA, OPEC outlooks for Crude oil (August) mn bpd Global Demand Non-Opec Supply OPEC Supply* US EIA OPEC IEA *OPEC and IEA forecast for OPEC supply (call on OPEC) is expected production from OPEC to match global demand and supply U.S. Economic Calendar (03 rd Sept to 07 th Sept) (source: Briefing.com) Date IST Release For Actual Consensus Prior Sep Trade Balance Jul $42.0B -$44.0B -$41.9B Sep Initial Claims 09-Aug 369K 365K Sep PPI Aug 1.20% 0.30% Sep FOMC Rate Decision Sep 0.25% 0.25% Sep Retail Sales Aug 0.70% 0.80% Sep Retail Sales ex-auto Aug 0.80% 0.80% Sep CPI Aug 0.60% 0.00% Sep Industrial Production Aug -0.20% 0.60% Sep Mich Sentiment Sep Energy Daily Please See Disclaimer on the Last Page 4

5 NYMEX Crude Oil Forward Curve (USD per barrel) MCX Crude Oil Spread Matrix (RS per barrel) Oct Nov Dec Jan Feb Sep Oct Nov Dec Jan Feb M 2M 3M 4M 5M 6M 7M 8M 9M 10M 11M 12M Monday Tuesday Wednesday Thursday Friday NYMEX Natural Gas Forward Curve (US per mmbtu) MCX Gas Spread Matrix (Rs/mmBtu) Oct Nov Sep Oct Nov M 2M 3M 4M 5M 6M 7M 8M 9M 10M 11M 12M Monday Tuesday Wednesday Thursday Friday Energy Daily Please See Disclaimer on the Last Page 5

6 Prerana Desai Vice President- Research Dharmesh Bhatia AVP Research- Technical Analyst Faiyaz Hudani Sr. Research analyst- Spices, Grains Amit Sajeja Sr. Research analyst- Technical Analyst Sudha R. Acharya Research analyst- Edible Oil, Pulses Ajay Baheti Associate Research- Technical Analyst Madhavi Mehta Research analyst- Energy, Bullion Priyanka Jhaveri Research analyst- Base Metals Disclaimer This document is notfor public distribution and has been furnished to you solely for yourinformation and must not be reproduced or redistributed to any other person.persons into whose possession this document may come are required to observethese restrictions. This material is forthe personal information of the authorized recipient, and we are not soliciting any action based upon it. This report is not to be construed as an offer to seller the solicitation of an offer to buy any commodity or commodity derivative inane jurisdiction where such an offer or solicitation would be illegal. It is forthe general information of clients of Kotak Commodity Services Limited. It doesn t constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. We have reviewed the report, and in so far as it includes current or historicalinformation, it is believed to be reliable though its accuracy or completenesscannot be guaranteed. Neither Kotak Commodity Services Limited, nor any personconnected with it, accepts any liability arising from the use of this document.the recipients of this material should rely on their own investigations and taketheir own professional advice. Priceand value of the commodity referred to in this material may go up or down. Pastperformance is not a guide for future performance. Certain transactions-including those involving commodity derivatives involve substantial risk andare not suitable for all investors. Reports based on technical analysis centerson studying charts of a commodity s price movement and trading volume, asopposed to focusing on a commodity s fundamentals and as such, may not matchwith a report on a commodity's fundamentals. We do not have anyinformation other than information available to general public. The report isbased on information from sources like respective industry associations, FICCI,CII, companies, media and other public sources. Opinions expressed are ourcurrent opinions as of the date appearing on this material only. While weendeavor to update on a reasonable basis the information discussed in thismaterial, there may be regulatory, compliance, or other reasons that prevent usfrom doing so. Prospective investors and others are cautioned that anyforward-looking statements are not predictions and may be subject to changewithout notice. Our proprietary trading may make trading decisions that areinconsistent with the recommendations expressed herein. We andour affiliates, officers, directors, and employees world wide may: (a) from timeto time, have long or short positions in, and buy or sell the commoditiesmentioned herein or (b) be engaged in any other transaction involving suchcommodities and earn brokerage or other compensation or act as a market maker inthe commodity/(ies) discussed herein or have other potential conflict ofinterest with respect to any recommendation and related information andopinions. Theanalyst for this report certifies that all of the views expressed in this reportaccurately reflect his or her personal views about the subject commodity and nopart of his or her compensation was, is or will be, directly or indirectlyrelated to specific recommendations or views expressed in this report. Nopart of this material may be duplicated in any form and/or redistributed withoutkotak Commodity Services Limited s prior written consent. RegisteredOffice: Kotak Commodity Services Ltd., Nirlon house, 1 st Floor,Dr. Annie BesantRoad, Opp. Sasmira, Worli, Mumbai - 25 Energy Daily Please See Disclaimer on the Last Page 6