Written Commentary
CRUDE OIL
Obviously, threats of an extension of production restraint by OPEC+ means a major bullish force in the market remains despite the slight corrective setback early today. However, the bull camp should be emboldened by strong futures spread action, a large inflow to the US oil fund ETF and from expectations of further tightening in US crude oil inventories. At present the markets are showing little concern for rising US interest rates and a persistent strengthening of the US dollar. Fortunately for the bull camp, the trade has propagated talk of further Chinese stimulus focusing on aggressive relaxation of credit requirements on individual home purchases. On the other hand, sentiment has become very bullish following the test of $90 in Brent crude oil. Entrenched bullish sentiment is justified given Saudi Arabian and Russian efforts to lower world inventories. The supportive influence of Saudi oil policy was apparent in recent OPEC production stats which showed Saudi production restraint keeping overall OPEC production last month up a minimal 40,000 barrels per day. While already known by the market, Russia indicated they would keep production restraint of 300,000 barrels per day in place for the rest of the year. Another supportive development is evidence that Venezuelan exports have contracted because of demand for its crude grades and from other off market forces. At least in the near term, the fear of softening global energy demand is discounted in favor of forecasts of significant tightness. Goldman predicted a “large oil market deficit of 2.3 million barrels” this quarter indicating OPEC production cuts have more than overcome softening demand. On the other hand, the demand story from China is not completely bearish with the country continuing to buy aggressively for strategic supplies and to facilitate very active refinery throughput.
NATURAL GAS
A gap-down trade in natural gas yesterday rekindles bearish confidence despite news of a significant jump in US heating degree days last week. The current washout is a function of last week’s overdone rally, misguided fears of disrupted supply from the Gulf of Mexico hurricane last week and perhaps most importantly from declining bullishness from European gas investors because of talks between Australian gas workers and management. However, soft European consumption has facilitated softer European gas prices which in turn should throw gas futures prices back to the recent low of $2.57.
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.
