Written Commentary
CRUDE OIL
The fundamental bear case in crude oil is solid and is only limited slightly by the magnitude of the oversold technical condition. This week the market has clearly telegraphed its lack of respect for further supply containment by OPEC+, especially with an increase in Cushing Oklahoma oil inventories this week of significance, a year-over-year EIA crude oil in storage surplus of 31 million barrels, projections of an increase in Chinese crude oil production next year and an unfolding view of global slowing provides at least three or four negative fundamentals for everyone positive fundamental. In fact, Bloomberg overnight expects Chinese oil demand next year to soften but will still produce a demand gain of 500,000 barrels per day. At least temporarily the focus of the crude oil trade will shift to US payrolls and their influence on the market’s energy demand expectations. While the strong Indian economy is a positive demand influence, overnight headlines indicate infrastructure is in place for India to import more crude from Russia deflates the bull impact from recent strong Indian oil consumption. The path of least resistance is down in crude oil with unrelenting demand fears sitting on the back of the market and the trade currently not concerned about OPEC+ cutting output quickly. Granted technical indicators are flashing red with this week likely to post a 7TH straight weekly decline in crude oil prices. Sentiment is so bearish toward the market that energy equity shares and ETFs are also under aggressive liquidation pressure. Fortunately for the bull camp European gasoline supplies dropped on the week as did several other major ARA product inventories. While we have indicated the potential for more downside, short-term indicators like stochastics are drifting closer to a buy signal, but the buy signal is not strong. Initial downside targeting in January crude oil becomes the late June low down at $67.45. Today traders should expect volatility today, as a surprise payroll reading is likely to cause gyrations in outside markets thereby impacting crude oil. Nonetheless we leave the bias with the bear camp until summer consolidation low prices are tested and respected.
NATURAL GAS
The charts clearly remain entrenched in a uniform downtrend channel and despite dramatically oversold classic technical signals and recently registering “buy signals” there is not a strong fundamental argument to predict a low. Adding to the bearish track is unrelenting strength in US production which is compounded by periodic mechanical disruptions of Gas export flow which backs up US storage levels. A sign of bearish control is plummeting prices in the direct aftermath of a much larger than expected storage withdrawal and a notable reduction in the surplus to five-year average inventories. The weekly natural gas storage report showed a draw of 117 bcf. Total storage stands at 3,719 bcf or 6.7% above the 5-year average. Over the last four weeks natural gas storage has declined 54 bcf. However, temperatures remain mild and perspective buyers are likely facing more risk than reward.
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.
