Written Commentary
by market analysts Stephen Platt and Mike McElroy
Price Overview
WTI drifted cautiously lower, settling off 44 cents at 80.63 as Gaza ceasefire talks gained traction following remarks by Secretary of State Blinken yesterday that negotiations in Qatar could reach an agreement between Israel and Hamas. The prospect that Houthi attacks on shipping might cease and allow the Suez Canal to open up appeared to be in the background as a negative influence. The negotiations centered on a span of about six weeks for a truce, although Hamas sought an indefinite duration. We remain skeptical that an agreement can be reached but the potential is a negative for values.
Weakness in crude oil physical markets has been noted in Europe and Africa as peak refinery maintenance and additional supplies from the US and Saudi Arabia have dampened the impact of Red Sea shipping delays. In addition, crude oil inventories afloat remain sizable. Due to Ukrainian drone attacks on refineries, Russia is also having to assess its strategies. The government indicated that fuel cargoes will take priority on railways as they try to alleviate shortages and limit price increases.
The OPEC+ production cuts are being watched closely and are limiting strong downside initiatives. Other variables include events in Ukraine following drone and missile attacks described as the largest in two years. On the demand side, China’s economic growth in the second half of the year will be monitored closely. With trade tensions heating up, the US continuing to source production domestically, and EV’s growing in popularity in China, uncertainty on the demand is still evident. Subsequently, we maintain an expectation for consolidation in the 76-84 range in the intermediate term.
Natural Gas
The second half of the week saw the market in a slow creep lower, with the active May dropping 1.4 cents yesterday and slipping another 1.9 cents today to settle at 1.812. Exciting news has been lacking for some time, with intermittent support coming from a pullback in production while tepid weather and overflowing stocks deter any substantial rallies. Temperatures have recently normalized, and that minor improvement in the demand outlook has been supportive. Unfortunately for bulls, wind generation is expected to see record output in the coming days to offset demand gains. Yesterday’s storage report also put a damper on any positive vibes, with the 7 bcf build above estimates and well ahead of typical injection season, reaching a staggering 678 bcf above the 5-year average. Reports that Freeport would have two trains down into May also dampened sentiment. The settlement back below the 9-day moving average today puts the contract low at 1.74 square in the crosshairs. A bounce in prices would hae to see a settlement above 1.90 to stir up any follow-through buying interest.
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.
