With another higher high for the move in the early going today, the trade continues to firmly embrace the idea of tightening supply. The latest surge in tight supply concerns are the result of International Energy Agency predictions that the market will maintain substantial deficits through the 4th quarter. Apparently, some analysts peg the current market to be the tightest in a decade and given the surge in prices overnight a trade above $90.00 looms. Adding to the threat of tightening supply are estimates from the Russian oil minister that Russian oil output will be down 1.5% this year. However, while OPEC reported Russian July output basically level in July versus the prior month, total OPEC August production came in above July by 113,000 barrels per day. According to the EIA the global oil market will continue to tighten with consumption outstripping supply by 230,000 barrels per day. In yet another supportive overnight development ARA crude storage fell 2.1% on a week-over-week basis. In retrospect, seeing Saudi Arabia and Russia extend production cuts to the end of the year laid the foundation for the gains over the last 5 sessions, and therefore that bullish storyline is building daily. Certainly, short-term technical signals in crude oil are overbought with the RSI reaching 81.3, which is near the highest level of the last 12 months. This week’s Reuters poll pegged EIA crude oil inventories to decline by 1.9 million barrels, but weekly crude oil stocks have consistently surprised the trade with much larger than expected declines over the past several weeks. After the close, the API survey said that US crude oil stocks had a weekly increase of 1.2 million barrels which contrasted with trade forecasts for a moderate weekly decline. The latest EIA US crude oil production forecast predicted an increase of 870,000 barrels per day to a production tally of 12.78 million barrels per day, which was bearish given their previous forecast of a gain in production of only 850,000 barrels per day. The latest EIA 2024 US production estimate was raised by 50,000 barrels per day to 13.1 million barrels per day leaving the market with two separate bearish EIA estimates.
The natural gas market surprised the trade with a sharp range up rally perhaps from news that striking LNG workers in Australia and management will not meet with mediators until September 22nd. However, evidence the US was the largest global LNG exporter in the first half of this year should temper the bear case which has been discounting the impact of growing US gas exports on domestic US inventories. It should be noted that the US export strength was accomplished despite the Freeport LNG plant outage which kept their export activity below full capacity as of late March. This week’s Reuters poll projects EIA natural gas storage to increase by 39 BCF to as high as 55 BCF. There are two tropical waves being monitored in the Eastern Atlantic but neither system has reached tropical storm standing. We expect very narrow ranges ahead and advise caution against buying near resistance of $2.85 and or selling near support at $2.499.
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.