The petroleum complex traded in a mixed fashion for most of the session with disappointed long liquidation noted late putting pressure on values. Some caution was evident amidst the rising tension between the US and Iran but pressure on values developed on ongoing concerns over the demand side due to international trade disputes between China, India and the US. Ideas that crude oil demand will be undercut by slowing economic growth is raising fears of further revisions downward in crude oil demand for 2019. With OPEC approaching decisions with respect to extending output cuts there still appears to be some difficulty scheduling the meeting with Iran who appears to have a preference for the original timetable or one later in July while other parties to the agreement including the Russians appear to favor a meeting following the G-20 meeting in Vienna on July 3-4. While most participants appear to favor a rolling over of the current accord through the end of the year, Algeria has indicated they support deeper cuts given the fall off in demand.
Surprisingly the market still has yet to respond strongly to the rise in geo-political tension in the Persian Gulf despite increases in insurance rates and reports that Iran looks set to breach the nuclear deal enrichment limit and their compliance with the accord. Despite Iranian denials that they had any role in the tanker attacks last week, accusations by the US and Saudi Arabia continue to be promulgated. Subsequently fears have built that the US might use this as a means to deflect attention from domestic issues; helping keep the market on edge.
We still believe the failure to respond to the attacks in a more forceful fashion despite other influences including the Venezuelan sanctions and appearance OPEC might be willing to roll over the current production restraint until the end of the year suggests other bearish factors are at work. These include the tariff dispute between China along with the expansion in US production and stockpiles. The demand side appears to have been affected by the tariff dispute and uncertainty over Chinese demand prospects.
Undoubtedly the level of geo-political tension will play an influence on values this week but the failure to respond in a more forceful fashion does suggest the market is beginning to recognize that bearish forces remain at work on the market providing overhead resistance near the 65.75-66.25 area basis August.
An early attempt at taking out resistance near the 2.40 area failed basis July on the maintenance of high production levels along with some scaling back of demand forecasts for the next two weeks. We suspect that the market will be well contained given the potential for stock levels to build toward normal levels during the summer. Expectations for this week’s EIA report are for a build of 113 bcf compared to 95 bcf a year ago and 84 bcf on the five year average. Support should continue to be apparent near 2.33 basis Aug.
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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