Crude Oil Under Pressure
The oil market enters the US trading hours under modest pressure, with some profit-taking after last week’s 5.8% gain. Trade is rather quiet with much of Asia on holiday and China closed for the week in observance of the Lunar New Year. Negative headwinds for oil include downside risk to the Chinese demand situation and chatter that the Israel-Hamas conflict could be moving toward a diplomatic solution. There are also reports that the oil-rich Permian Basin could see another year of record oil production. World oil production comes into focus ahead of Tomorrow’s OPEC meeting and the IEA monthly update on Thursday. In the meantime, positive forces underpinning the oil market include recent gains in world equity markets, with European shares at a new two-year high and the S&P 500 into fresh record highs. Ongoing Israeli strikes in the southern border town of Rafah continued over the weekend, which keeps the market focused on Middle East headline flow. A tight US supply and demand backdrop for the product markets is also supportive.
March Natural gas prices saw a gap lower open Sunday evening that led to another lower low. The market ended last week’s trade with a five-day losing streak and down 11%. There were reports over the weekend calling for the Biden administration to overturn the recent pause in LNG exports, but that’s done little to support the market this morning. The negative headwinds continue to be near record US production and warmer than normal US weather forecasts this winter. Utilities have used less natural gas this year as heating demand ebbed. US natural gas storage is about 15% above normal for this time of year. Last week’s slide in natural gas prices and subsequent rally in WTI crude oil drove the US oil to gas ratio into the highest level since 2012. This is likely to remain a negative headwind for natural gas prices, with more oil drilling activity pulling up more residual adding to natural gas supplies.
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.