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Energy Brief May 10

by AFS Archer Financial Svcs | May 10, 2019
by Steve Platt and Mike McElroy

Price Overview

The Petroleum complex showed a steady to firm tone with product markets attracting the best buying interest. Crude oil seemed to have been torn by the appearance that the trade dispute between the US and China had escalated following the failure to reach an acceptable agreement. The imposition of additional tariffs by the US today raised fears that the global economy might slow, particularly in China and to a lesser extent the US. 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 purchases 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. This might explain the crude markets inability to respond on the upside to the supply issues linked to the Iranian and Venezuelan situations and OPEC production restraint.

Crude May 10

For now it looks as if 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.

We still feel the ability of the US to block the Iranians from exporting oil might be difficult, but rising tensions in the region could ensue and increase volatility along with risk premium. Balancing the market amid such uncertainty will be difficult for OPEC+ as the need to maintain market share as US production expands is balanced against price levels that fulfill domestic objectives. Key to the outlook will likely be the IEA and OPEC monthly reports set for release on May 14th and 15th.

The July RBOB crack looks to have made a top near 21.29. Since February it has attracted good buying from the oversold levels it had reached. Stocks should build as refinery utilization picks up into summer and gasoline demand is met. With light crudes in excess, better availability of gasoline should ensue. Key resistance is likely to develop on any recovery rally near the 22.0 area basis July from 20.32 currently.

RBOB Chart

Natural Gas

The market shrugged off another large storage build as prices spent most of the session working higher, with the June putting in an intraday high at 2.647 before ending the day up 2.4 cents at 2.619. Thursday’s EIA build was 85 bcf, near estimates and above the 72 bcf 5 year average. 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.

Natural Gas chart

Charts Courtesy of DTN Prophet X

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