Written Commentary
CRUDE OIL
While bullish fundamentals in crude oil have been somewhat mixed, the bulls have clearly extended their late February control. In our opinion, it feels like hope is being built in for a wave of global central bank rate cuts which seem to have sparked improved demand for physical commodities. On the other hand, news that OPEC+ will extend production restraint, hope for a massive Chinese stimulus package announcement tomorrow, residual signs of dollar weakness, indications US refinery activity will begin to recover from extended maintenance, and reports of increased global diesel demand provides the bull camp with classic fundamental fuel today. According to Bloomberg, except for a disruption of US refinery activity from a winter storm in 2021, US refinery activity is at the lowest level on a seasonal basis since 2011. It is also likely that a portion of recent gains were long-term value buying with the net spec and fund long positioning in crude oil remaining near the lowest levels of the last decade. With EIA crude oil stocks building five straight weeks and EIA product stocks showing very minimal declines, the extremely low US refinery operating rate still offers a slight headwind to crude and has not provided tailwinds for the products yet. While there were negotiations for a peace deal/cease-fire last week, crude oil ultimately forged an upside breakout suggesting the focus of the trade wasn’t locked onto the Middle East situation. In the end, we see the strong upward action in crude oil last week driven by upbeat demand expectations and without soft and or Goldilocks inflation data from around the world and Goldilocks to slightly soft economic data, the improved energy demand argument will be questioned.
NATURAL GAS
In retrospect, the rally off the February low was likely the result of balancing a significant oversold technical and fundamental condition as fundamentals have not shifted in favor of the bull camp. In fact, overnight predictions calling for more record US gas production, ongoing mild temperatures, and predictions of expanded supply in southeast Asia and Iran the early gains this morning are misguided. In fact, the fundamental condition continues to worsen with a US surplus to five-year average inventory levels running above 26%, total northern hemisphere heating degree days running well below normal and some minor recent problems with US export flow giving the bear camp a lot of ammunition. However, open interest has fallen dramatically, and the natural gas market holds a material net spec and fund short which could slow the pace of an upcoming corrective slide. We see a slight downward bias until Chinese import data and results from a Chinese party meeting tomorrow provide fresh signals on the direction of Chinese energy demand.
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.
