Written Commentary
CRUDE OIL
While today’s weekly EIA report will certainly have an impact on prices, a portion of the energy trade focus will be temporarily diverted to macroeconomic issues from a US Federal Reserve Chairman testimony to Congress. Fortunately for the bull camp, the inflow to API crude oil stocks from yesterday afternoon was much lower than the expectations for the inflow to EIA crude oil stocks this morning and that bullish development was magnified by a much larger than expected drawdown in API gasoline inventories. Unfortunately for the bull camp, weekly crude oil in ARA storage facilities increased by 3.9% versus the prior week and Putin has indicated the goal of OPEC+ is not to raise prices. However, the global energy trade is more focused on the latest tightening of US sanctions on companies shipping Russian oil supply as that adds to the shipping complications in the Middle East. Along those lines, it appears that India has moderated its interest in Russian oil, but it is not clear if that is the result of increased sanctions or classic economic decisions. In retrospect, the rejection of the initial weakness yesterday in crude oil came from news that a Turkish oil terminal had stopped accepting Russian oil imports because of the latest round of sanction tightening by the US. While the trade earlier in the week expected a significant jump in EIA US crude oil inventories, we suspect that bar has been lowered by the smallish API inflow. After the close, the API survey said that US crude oil stocks had a weekly increase of only 423,000 barrels which was a much smaller increase than trade forecasts. In the end, fear of softening energy demand is the primary pillar of the bear case this morning but seeing a crude stock inflow at the EIA above 1.5 million barrels could result in April crude oil prices spiking down.
NATURAL GAS
While there are overnight reports that higher European prices this week have been the result of increased demand, we continue to think the primary buying fuel in the market is short covering. Certainly, the trade has already fully jumped to the conclusion that much above normal winter temperatures will result in season ending inventories reaching even more burdensome levels. However, the much above normal temperature pattern in the North American winter has resulted in early spring chatter which in turn could signal extreme heat this summer which in turn would ramp up energy consumption for air conditioning. On the other hand, this week’s Reuters poll projects a very minimal range of withdrawals of 35 to 45 BCF which in turn will likely raise the surplus to five-year average inventory levels toward 30%. In the end, without a surprise very bullish fundamental paradigm shift, we see natural gas prices falling back from this week’s early high especially if today’s EIA report shows another sizeable jump in the surplus to five-year average US gas inventory levels.
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.
