The Petroleum complex traded in a firm fashion on the ongoing commitment by Saudi Arabia to stand by the production cuts agreed to in November by OPEC+. The cuts which total up to 1.2 mb/d have helped re balance the market and likewise support prices. Reports that the cuts will likely be extended to at least June when OPEC again meets appeared to help generate fresh speculative buying interest on ideas the market will generally tighten particularly if the waivers on Iranian exports are withdrawn at that time. Products traded mixed with gasoline firm on renewed buying of the crack while deisel attracted only scattered buying on the prospect for waning demand for heating oil as temperatures moderate on the East Coast and on the appearance the economy might be slowing which could impact freight shipments.
Despite the strength today the market should still encounter resistance near the 57.00-57.50 area basis April as ongoing doubts over demand combine with an expansion in production levels from the US, Brazil, and Iraq. The expansion in production levels will keep demand for OPEC oil rather limited and will necessitate continued management of OPEC supplies which could be problematic if supplies from Iran or Venezuela eventually increase.
With the Trump administration intent on offsetting moves by OPEC to support prices by witholding output the potential exists for some accomodation to be made allowing both exports of both Iranian and Venezuelan crude to continue through the extension of waivers. We still feel the deterioration of the political situation in Venezuela appears to be reaching a breaking point which would allow for a rebuilding of the oil industry and renewed capital investment. Near term we still feel a setback toward the 53.00 area is reasonable given the rising concern over global economic prospects and the optimistic outlook for US production in the coming year.
Prices came under active selling pressure reflecting the appearance that temperatures forecasts for end March had been scaled up helping alleviate the need for nat gas for residential heating. The breakdown likely will be limited in the near term as concerns build into this week’s EIA report. With another large drawdown expected in next week’s report (198 bcf verses a 5 year average of 99) and stocks low relative to five year averages, it appears likely that the market might be reluctant to move significantly lower. Look for a pullback toward the 2.67-2.69 area to attract underlying support due to the low inventory levels.
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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