Written Commentary
NATURAL GAS
Despite favorable chart action with a rejection of last Friday’s spike down move yesterday, and a higher high this morning, the fundamental picture in natural gas remains negative. In fact, LNG supply in floating storage increased by 7% compared to last week. On the other hand, US cooling degree days are expected to be 12 degree days above normal and there were signs of bargain hunting buying. Certainly, there are signs of strong early electricity needs for northern hemisphere cooling, but without a blistering nationwide sustained heatwave it is unlikely excess US supplies will be worked off quickly. This week’s Reuters poll projects EIA gas in working storage to increase by 52 to 56 BCF which coupled with last week’s larger than expected injection should serve to limit near-term gains in natural gas.
CRUDE OIL
Several overnight developments justify the three-day low overnight. Apparently, the trade thinks the odds of a cease-fire are decent with the Hamas delegation departing Egypt to discuss the proposals with leadership, but we are still suspicious of that view given hardliner control of Hamas. On the other hand, the US Secretary of State is expected to step up pressure on both parties and Israel has promised to analyze the offer and has delayed its plan to invade Rafah. However, trade chatter overnight suggested the geopolitical/war premium in crude prices is substantially lower than at the peak of hostilities and in a range of three dollars to five dollars. Other bearish news includes a 4.4% drop in Japanese March crude oil imports and disappointing Chinese PMI readings overnight which suggest the potential for softening Chinese energy demand. Further signs of softening of the Chinese economy came from official cuts in Chinese gasoline and diesel retail prices. Even product demand news favors the bear camp with talk of a scramble to find diesel storage in the US and predictions that summer jet fuel demand increases may not be much as last summer. In a fresh negative published late Monday, the Chinese national oil company indicated its quarterly output increased by 10 million barrels, with current output at 239.6 million barrels. Furthermore, with Shell Oil reportedly earning $1 billion from crude oil trading every year and earning $2.4 billion last quarter from LNG trading, that is likely to prompt the US administration to threaten the company with regulation designed to reduce profits and prices.
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.
