Written Commentary
CRUDE OIL
The crude oil market continues to rally with fresh higher highs for the move posted early today. Apparently, escalating big picture macroeconomic fears from disappointing data, looming US default, a significant jump in US interest rates and ongoing strength in the dollar are being aggressively discounted by the trade. Even more surprising is the market’s ability to discount fresh concerns of a 2nd Covid wave in China. However, with the Saudis threatening short sellers into the OPEC+ meeting and massive declines in API energy inventories yesterday the bull track is likely to extend. In fact, the 6.79-million-barrel decline in API crude oil stocks combined with a similar massive decline in API gasoline inventories rekindles supply tightness concerns and in turn is sparking speculative and hedge buying. However, the market has been presented with bearish developments with a moderation of threatening conditions from wildfires in Canada and indications from France that it has already restocked 70% of oil reserve stocks dispensed during its prolonged refinery strike. From a historical perspective, seasonal refinery operating rates should rise consistently over the coming 2 months before peaking at the end of July. We see the refinery operating rate rising consistently until fewer than 5% of US refinery capacity is idled.
NATURAL GAS
With near term weather forecast predicting slightly cooler than normal temperatures throughout the southern US (a very key cooling demand region), a rise in US gas production yesterday of 2.7% and a 2.2% year-over-year declinein lower 48 gas demand yesterday the bias in natural gas prices is down. From a technical perspective, the recent rally in natural gas has likely moderated a long-held net spec and fund short position somewhat which could result in a wave of extremely aggressive fresh selling if there is a macro economic meltdown ahead. This week’s Reuters poll pegs EIA natural gas in storage to expand by 94 BCF to 102 BCF. If there is a triple digit injection this week that will be the first triple digit injection this year and that will likely rekindle oversupply fear.
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.
