Written Commentary
CRUDE OIL
In retrospect, the rally off the January lows has not been from a single factor but instead has likely been the result of improving global sentiment from a generally positive US economy, a series of Chinese stimulus moves, concerns of delayed supply from the Middle East and most importantly from the need to factor a premium into prices in case hostilities expand to a point where key production is interrupted. However, the prospect of a Middle East supply loss has been in play for nearly 2 months and other than delays there has not been a disruption of supply. This week’s gains were at least partially sparked by signs that Ukraine and Russia are targeting oil infrastructure with drone attacks. Limiting the upside in crude oil this morning the largest oil company in the world (Saudi Aramco) continues to send tankers through the Red Sea. However, the Houthis have indicated they will continue attack keeping the bear camp off balance. Obviously, the upside extension and trade to the highest level since November 30th today has added bullish charts to the equation. The rally has been justified by this week’s overall improvement in global macroeconomic sentiment, especially since sentiment toward the Chinese economy improved and the ebb and flow of Chinese energy demand one of the most dominating factors in the trade. On the other hand, another large decline in EIA weekly crude oil inventories and another jump in the year-over-year deficit in crude oil stocks provides ongoing support from the supply side of the equation.
NATURAL GAS
In retrospect, the recovery early this week in Gas was classic short covering buying from the very aggressive mid-January washout. However, we are very surprised that natural gas prices have not plummeted today as the President put pending approvals of extra LNG export facilities on hold as the lack of an expansion of US export capacity will increase the chance of a long-term excess surplus condition entrenching in the US. Another fresh negative overnight are reports that Asian LNG buyers are holding out for a $1.00 LNG decline in spot prices. Furthermore, with summer gas prices rising above winter gas prices, it is clear the trade is heavily discounting any kind of late winter surge in demand and/or a significant reduction of US supply from extremely high levels. However, this week’s EIA natural gas in working storage withdrawal of 326 BCF was much larger than expected, and perhaps more important the report cut the surplus to five-year average inventory levels in half from 11.2% to only 5.2%. While the technical picture favors the bear camp, the fundamental case was presented with the most bullish weekly EIA inventory report of the 2024 winter, yet the natural gas market failed to hold a new high for the move. Therefore, the bull camp has a partial offset to the very bearish move to stall US LNG exports.
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.
