Written Commentary
CRUDE OIL
An escalation of political tensions between Russia and the allies combined with rumors China will supply military equipment to Russia should provide cushion for crude oil at the $75.00 level. While the US, EU and the United Nations are unlikely to punish China for a direct support of Russia, that potential could interject some supply-side premium to energy prices ahead. Unfortunately for the bull camp crude oil starts the trading week facing deteriorating global economic sentiment which in turn questions positive demand projections. Furthermore, Asian demand expectations and prices moderated overnight morning reportedly from heavy arbitrage action. Even though some traders will see a doubling of Chinese Urals oil purchases in the first half of February as a negative from the ineffectiveness of the embargo, seeing China increase imports should provide optimism toward the Chinese economy. In a major bullish development Bloomberg coverage overnight forecasts Chinese apparent oil demand this year to rise by 6.2% to 13.7 million barrels per day. Furthermore, Indian January crude oil imports reached a 6-month high, but those imports were of Russian origin. In the end, deteriorating global economic psychology is countered by signs of strong Chinese demand.
NATURAL GAS
The downside extension early today, following a new low for the move on strong volume on Friday, leaves the technical bias pointing down. Clearly, the market is discounting news that LNG floating supply in the latest weekly readings declined by 22%. Even with news of increased buying from emerging countries prices have softened below $15 per MMBTU in the region. Certainly, much above normal temperatures throughout the US has further reduced the prospect of winter tightness in the US especially with the idled US export facility coming back online so late in the season. In the near term, the likelihood of the largest ever net spec and fund short in natural gas is of little concern to the trade especially with those weekly numbers suspended until further notice. In fact, the bear camp shows little concern despite futures prices falling below some cost of production levels.
Interested in more futures markets? Explore our Market Dashboards here.
Risk Warning: Investments in Equities, Contracts for Difference (CFDs) in any instrument, Futures, Options, Derivatives and Foreign Exchange can fluctuate in value. Investors should therefore be aware that they may not realise the initial amount invested and may incur additional liabilities. These investments may be subject to above average financial risk of loss. Investors should consider their financial circumstances, investment experience and if it is appropriate to invest. If necessary, seek independent financial advice.
ADM Investor Services International Limited, registered in England No. 2547805, is authorised and regulated by the Financial Conduct Authority [FRN 148474] and is a member of the London Stock Exchange. Registered office: 3rd Floor, The Minster Building, 21 Mincing Lane, London EC3R 7AG.
A subsidiary of Archer Daniels Midland Company.
© 2021 ADM Investor Services International Limited.
Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. The information and comments contained herein is provided by ADMIS and in no way should be construed to be information provided by ADM. The author of this report did not have a financial interest in any of the contracts discussed in this report at the time the report was prepared. The information provided is designed to assist in your analysis and evaluation of the futures and options markets. However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to ADMIS. Copyright ADM Investor Services, Inc.
