Written Commentary
CRUDE OIL
Clearly, upbeat macroeconomic psychology off hopes of a solution to the US debt ceiling crisis is providing underpin for petroleum prices over the last 24 hours. Crude oil prices are also likely drafting support from favorable global equity market action, evidence that May Russian oil output fell by 350,000 barrels per day from February and by talk that both the US and India are rebuilding their strategic oil supplies. Other supportive overnight developments came from signs of increased Asian buying of both Russian and US crude oil, talk of an ongoing slide in US rig operating counts and very optimistic upcoming US fuel consumption. An increase in US refinery activity should increase the call on US crude supply, especially with refiners looking to build inventories ahead of the increase in seasonal demand. At least part of the unexpectedly large surge in EIA crude oil stocks this week was from the release of oil from the SPR and perhaps not a signal of softening demand. In a longer-term supportive development, the trade is beginning to pick up on the sharp declines in US rig drilling activity which is partially the result of the April and early May high to low washout in crude oil prices of $19.00. It is also possible that a portion of the decline in drilling activity in the months ahead will be the result of regional banks backing away from risky loans or simply reducing the size of their loan books.
NATURAL GAS
From a longer-term perspective further evidence of declining rig operating counts and tighter EPA rules on toxic coal ash could provide natural gas with support from supply and demand perspectives. Another intermediate supportive development for gas came from Spain’s energy minister who suggested the EU will move to ban Russian LNG soon. It should also be noted that the G7 agenda in the meeting in Japan includes discussions on modifying or introducing new sanctions against Russia to reduce their ability to finance the war against Ukraine. While the top of the range of estimates for this week’s EIA working gas in storage report project an injection of 116 BCF, the whisper number is calling for a bigger injection. However, much above normal temperatures are expected on Friday throughout the US Gulf states reaching as far north as Oklahoma, Arkansas, Tennessee, and North Carolina. While the natural gas market has managed to hold the gains off the early May lows, the bull camp could be tested today following US storage readings. However, hot temperatures are expected in the lower Southeast of the US on Friday and though they will narrow to only the Gulf states on Saturday, the natural gas market should see modest support from the weather. On the other hand, we expected supply issues to provide headwinds for prices today.
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.
