Crude Supply & Demand Fluctuate
While we think crude oil has settled into a $75.00/$70.00 trading range, both supply and demand fundamentals have been fluctuating wildly. However, we leave the near-term edge with the bear camp given evidence of a rise in Chinese Covid infections, increased Nigerian supply flow to Europe and most importantly because of an 8.3% year-over-year decline in Indian crude oil imports in April. It should be noted that OPEC+ exports are running 1.4 million barrels per day lower this month relative to the previous month thereby showing improved compliance to their supply reducing scheme. On the other hand, the trade has yet to see evidence that Russia is reducing its production even if it is attempting to restrict exports. Yet another negative (but less important) force for crude oil today is the threat of even higher US interest rates. On the other hand, as of this writing there was word the two sides in the US debt ceiling negotiations are getting closer, with politicians even providing a Dollar value of the differences between the two parties. Furthermore, given this week’s massive decline in EIA crude oil stocks, an expansion of the US EIA gasoline deficit to year ago levels, plans of lower Chinese fuel exports and weekly declines in ARA product inventories (except for jet fuel) the bull camp does have several arguments in place. Without a significant risk on extension in equity gains today or further evidence a debt ceiling deal is in the works, we give the edge to the bear camp.
With US temperature forecasts showing mixed regions of modest heat, normal, and cooler than normal temperatures, we see near term energy demand as negative for natural gas prices. As in the petroleum complex, natural gas should see negative demand pressure from Chinese Covid infection headlines. Furthermore, a major Chinese national oil company has reportedly signed a deal with the Netherlands to accept Chinese LNG shipments following a terminal agreement. A sign of fundamental vulnerability surfaced yesterday following the weekly EIA storage report as prices fell despite a lower end of the range of expectations injection. An issue that could facilitate the near-term slide to $2.20 are reports of record US production again and an expansion of Canadian LNG exports. As indicated already, we see the path of least resistance pointing down with unreliable support at $2.2739 and a possible decline down to $2.20 seen before the end of the month next week.
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.