Written Commentary
CRUDE OIL
With a 3-day high early, risk on sentiment flowing from equities and many commodities and the IEA expressing concern of a deeper fossil fuel related energy crisis, the bull camp has a broad spectrum of issues in its favor. Perhaps most importantly, the reduction in floating storage in the Asian-Pacific rim fell by 22% with US Gulf Coast supplies posting a startling decline of 49%. While prices might be benefiting from predictions of a more active hurricane season, we attach little credibility to that forecast this early in the season.
Certainly, last week’s high to low pummeling of $0.45 in July RBOB punctured some bullish market sentiment, but supply side fundamentals should continue to out punch sagging demand fear. Perhaps more importantly is the beginning of the seasonal upswing in gasoline demand for the northern hemisphere summer especially with US implied gasoline demand last week climbing above 9 million barrels per day which if maintained and extended by normal seasonal patterns suggest that record prices are not markedly damaging demand. On the other hand, according to the EIA, US gasoline demand last week was 1.3% below the same week in 2019, while the four-week moving average of demand reached the highest of the year.
NATURAL GAS
With the gas market appearing to run out of buying fuel at last week’s high and posting a setback of $0.70 from that high, the market has recently found value or a pivot price of $8.00 in the July contract. While slowing threats obviously threaten gas demand, gas demand should be more inelastic compared to RBOB and less Russian gas is likely going forward. On the other hand, the market looks vulnerable early today with European gas prices reaching 3-month lows, Dutch prices falling 5.2% for tomorrow’s spot gas and market chatter regarding increased supply from Norway. At least initially the market is discounting Poland’s halt of consumption of gas from the Yamal pipeline.
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.
