Written Commentary
CRUDE OIL
With risk on psychology from strong equities extending into another session, further dollar weakness and the potential for “relief” from the inflation battle, the bias in oil prices remains up. In fact, oil prices have managed to rise in the face of news that the US Department of Energy released the largest amount of strategic petroleum reserve oil in history last week. In other words, despite extraordinary supply flow and constant energy demand fears from China, oil markets have remained “tight”. While we acknowledge the expectations for recent gains to extend from a lengthening string of daily risk on trading sessions and unfolding weakness in the US dollar, the threat of tightening supply is probably the strongest bull argument in the marketplace. The prospect of tightening supply is primarily flowing from Russian presidential threats to completely shut off energy exports if a Russian Price Cap is implemented by the G7. However, reports of a breakdown of Iranian nuclear talks removes hope of easing of Iranian oil export limits.
In addition to spillover support from strength in crude oil from threats of a complete halt of Russian energy exports, the gasoline market is drafting speculative buying interest from reports that gasoline supply is so tight on the west Coast that supplies are being pulled all the way from Europe. Certainly, the gasoline market has the “least bullish” classic supply and demand set up of the energy complex, but it can be pulled up by crude oil and ULSD. In fact, US gasoline stocks remain at a deficit to year ago levels and the prospect of declining US refinery activity ahead should reduce the potential to rebuild supply even in the face of slackening seasonal demand.
NATURAL GAS
As in the petroleum markets, the natural gas market has significant fundamental cross currents likely to cause two-sided price volatility today. In retrospect, natural gas prices were held in check early yesterday, but tech action ultimately shifted bullish with a 4-day high and another higher high this morning. Residual bullishness is evidenced by the market’s ability to discount evidence of progress in filling storage capacity in Europe with suggestions that some Russian supply will be needed beyond full capacity storage supply to meet daily winter needs. It goes without saying that a Russian orchestrated ban on energy exports should discourage sellers and encourage speculative buyers.
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.
