Written Commentary
Price Overview
The petroleum complex traded sharply lower, giving back all of yesterday’s gains as the market focused on supply issues rather than the outlook for strengthening demand this summer. Concerns over infections in India and slowing factory growth in China were also negative influences. On the supply side, reports that Iranian output continued to expand pressured values, as it was indicated to have risen .2 mb/d to 2.5 mb/d, which put OPEC+ production at 25.17 mb/d in April. Although this total reflected a compliance level of 123 percent, the potential for additional output from members in May along with a reduction in voluntary cuts by Saudi Arabia should allow for greater supply availability as the year progresses.
Although demand concerns remain due to the rise in COVID-19 infections, OPEC plans to move toward a more normal production level should allow supplies to expand at a rate consistent with expected demand growth. At this point in time, it appears that OPEC has done a good job of balancing the market through mid-year. In the 3rd quarter a more balanced stock situation should emerge, making it contingent on the cartel to fine tune their production policies based on the strength of the recovery in demand. Key to their effectiveness will be the reaction to changes in production levels by Iran and Libya, who are currently exempt from output curbs. In addition, inflationary pressures from outside the petroleum complex might offer resistance as doubts over the durability of the recovery begin to emerge.
Natural Gas
The weekly storage report managed to uncover some selling interest as prices retrenched below 2.90 after its release yesterday, with the 15 bcf injection slightly above expectations. The pullback was short lived as values began to recover this morning and ended the session up 2 cents at 2.931 basis June. The bull story remains the same as surging Asian and European LNG prices paint a rosy picture for US exports through the summer. The record pace of exports to Mexico is adding to the positive tilt, along with a general euphoria on a macro level from the improving economy and inflation potential that could attract speculative interest. Despite the return to upside action today, the market remains overbought technically and could see further near-term weakness as we still have some lackluster shoulder season demand ahead, with the 2.80 to 2.85 area emerging as support on any pullback. The next target on the upside is the February double top at 3.082.
Charts Courtesy of DTN Prophet X, EIA, Reuters
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.
