Written Commentary
CRUDE OIL
Given the massive gap up trade to start the week, it is very surprising crude oil prices have managed to hold gains in the face of a clear deterioration in US economic activity. However, global economic data has held together thereby keeping overall global demand hope in place. Fortunately for the bull camp, yesterday’s API report produced a sweep of distinctly supportive inventory decline readings. While not a major supportive development, crude oil storage in the euro zone (ARA) fell 44,000 barrels last week. Reports of building inflows to short oil funds are expected to continue but are unlikely to drive prices lower without an explosion of risk off headlines. While a 1.1 million barrel per day reduction in global oil production should offset a moderate amount of softening demand, global scheduled data this week appears to be signaling significant demand losses. However, the crude oil trade yesterday stood up against sagging demand signals even though prices were dramatically overbought from a $5 gap higher opening trade on Monday. The API survey released after yesterday’s close showed US crude oil stocks having a weekly increase of 4.35 million barrels which was much larger than trade forecasts. In retrospect, the ability to hold above $80.00 yesterday was impressive given an emerging pattern of soft US data this week. In our opinion, fear of slumping demand will eventually overcome expectations of tighter supply and in turn will knock May crude oil back down into the gap left by Monday’s opening.
NATURAL GAS
The most positive development for the bull camp in natural gas is the market’s capacity to hold above the $2.00 psychological price level this week. However, a bit of lingering cold in Europe, record US LNG exports and the massive jump in petroleum prices has probably discouraged some would be natural gas sellers. Overnight reports surfaced suggesting one of 3 French liquefied natural gas import facilities shut down by strikes could be restarted today which is more psychologically supportive than supportive from a physical demand angle. It is likely the North American winter heating season will end with only 3 triple digit weekly withdrawals and potentially with EIA gas in storage running nearly 25% above 5-year average storage levels. With the net spec and fund short positioning in natural grass declining consistently since the February 28th report and given the sideways consolidation action since the last positioning report was measured, it is possible that some would be sellers are losing interest. While natural gas prices have not shown significant pressure from deteriorating macroeconomic conditions this week, that should not be ruled out especially if US data becomes cooler, and temperatures become warmer.
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.
