The Petroleum complex traded in volatile fashion as good buying interest developed early on reports that suggested tankers of both Saudi Arabia had been targeted in a sabotage attack off the coast of the UAE. Fears this was a threat to oil supplies along with speculation of Iranian involvement carried values up to as high as 63.33 basis June. Although the gains held into the beginning of the US session, the strength could not be maintained as the sharp losses in equity values undercut sentiment. Ideas the trade tensions will lead to more sluggish economic growth globally and weaken energy demand appeared to shade sentiment to the downside in light of the increase in tariffs by both the US and China.
The failure to respond to the attacks on shipping along with the appearance that tension between the US and Iran might be ramping up following moves by the US to move additional military assets into the region was disappouinting and suggests other influences might be at work that will help mitigate ther impact of the sanctions on the woerld market. Not only has the the imposition of additional tariffs by the US today raised fears that the global economy might slow but the action also raised the possibility of Chinese retaliation and how it might impact not only imports of crude from the US but also Chinese compliance with trade sanctions on Iran. Although reports suggest that China Petrochemical and the Chinese National Petroleum Corp are skipping Iranian oil purchses in May, the breakdown in talks might allow a more concerted effort by the Chinese at purchasing Iranian cargoes in future months as economic and political considerations come into play.
We still see bearishness linked to fears of a continuation of the trade dispute are being counterbalanced by supply and geopolitical concerns in the Middle East. Until these concerns are resolved we expect a choppy trading range will evolve in the prompt month near the 60.00-65.50 area until the effectiveness of the sanctions can be assessed, the output levels from OPEC are determined for the 2nd half of the year, and the OPEC meeting on June 25-26th takes place. Near term the market will likely be influenced by the OPEC and IEA reports set for release tomorrow and Wednesday respectively along with DOE the report which is expected to show crude inventories off 2.1 mb.
The market traded in a steady fashion awaiting fresh news. The weather remains a non-issue as trade tries to decipher just how much gas can get pumped into storage before the summer cooling season kicks in. With LNG exports steadily improving and exports to Mexico also trending positive, the market appears to have put in its lows for the summer months and seems to be creeping toward a higher price band as it weighs the summer risks. Near term we continue to expect the 2.68 level in June to offer good resistance as trade awaits what is expected to be another solid storage build next week, with a 104 bcf injection estimated against an average at this time of year of 89.
Charts Courtesy of DTN Prophet X
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 views and opinions expressed in this letter are those of the author and do not reflect the views of ADM Investor Services, Inc. or its staff. 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 ADMIS position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to. The authors of this piece currently maintain positions in the commodities mentioned within this report. Charts Courtesy of DTN Prophet X, EIA.
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