Written Commentary
NATURAL GAS
Another day, another new contract low in natural gas as both supply and demand remain definitively bearish. Minor negatives adding to the downward tilt in prices are a return pre-war exports of Israeli gas to Egypt and news that Colombia will consider importing natural gas from Venezuela as that tamps into supply previously not open to the world market. While temperature forecasts remain bearish with slightly warmer forecasts for the northern and northeastern US out to the end of the month, colder temperatures in Europe over the coming days should temper selling today. However, Goldman reduced its European gas price forecast because of the full capacity storage ahead of the winter. As we indicated yesterday, to see a bottom in natural gas requires evidence of a massively short spec and fund positioning or some other major unforeseen development.
CRUDE OIL
The slightly lower track this morning is partially justified by the strong rally yesterday which did not appear to have a definitive fundamental origin. However, the energy markets are set to benefit this week from the potential for deeper production cuts from OPEC+ from this weekend’s upcoming meeting. On the other hand, sentiment is divided on the outcome of the upcoming OPEC+ meeting with expectations for deeper cuts countervailed by ideas that the restraint agreement might not hold into the new year. However, according to a Bloomberg story overnight oil options traders are currently predicting a 53% chance that OPEC plus production will be cut this weekend. However, China apparently imported less crude from Russia last month which many see as a confirmation of residual weakness in the Chinese economy. In another minimal negative Iran has predicted its production will increase to 3.6 million barrels per day (from 2.3 million barrels per day) at the end of their current year which ends March 2024. Iran also predicts their production will rise to 4 million barrels per day next year. It is also likely that crude oil and some physical commodities are set to benefit from the noted and likely ongoing downside extension in the dollar. However, we are suspect of the argument that the end of the US rate hike cycle will improve energy demand prospects, especially after US scheduled data turned off soft over the last three weeks. This week’s Reuters poll projects EIA crude oil stocks to increase by 1.5 million barrels which would be the third straight week of inflows amounting to nearly 19 million barrels. In today’s action, we suspect an extension of the bull track from the talk of production cuts, but to forge a second day of strong gains like yesterday might require a risk-on environment throughout the markets.
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.
