The petroleum complex traded in a choppy fashion as the market awaited some clarity regarding economic prospects following the G-20 meeting while awaiting the OPEC meeting taking place on July 1-2. Reports the Saudi Oil Minister and Russian Oil Minister had met in advance of a meeting by Putin and Saudi Crown Prince Muhammad bin Salman appeared to have little impact on price movement. The lack of fresh news and the lack of indications what direction OPEC+ will take with respect to the output deal appeared to encouraged active profit taking late. The meeting between Trump and Xi on Saturday continues to provide hope that the trade dispute might be near an end. Nevertheless, caution was apparent given recent surprises and disappointments.
The late market weakness against the 59.00-60.00 resistance level basis August crude introduces the prospect that OPEC+ at their meeting beginning July 2 might not extend the agreement as expected as we move into the 2nd half of 2019. The reluctance of Russia to cut along with the appearance that inventories are beginning to decline might make negotiations more difficult particularly if the G-20 provides a more optimistic outlook on the global economy. Key to the outlook remains the impact of sanctions on Iran and Venezuela and the resulting supplies available to the world market over the last half of 2019.
In crude, we still see resistance in the 59-60 range. From a longer term viewpoint, it still appears the markets inability to respond to the retrenchment in export levels from both Iran and Venezuela puts the market in a precarious position as traders assess the longer range impact from the ongoing expansion in US production levels and the resulting increase in US market share at the expense of OPEC. Whether OPEC+ and particularly Saudi Arabia is willing to tolerate such a situation given the prospective slower growth in demand due to economic considerations and prospective substitution of renewables.
The market traded in a firm fashion initially on expectations of higher LNG exports as new facilities come on line. However, the market failed to follow through at the higher levels on fears the additional LNG capacity will lead to surplus gas and potentially lead to some sales cancellations as storage in Northern Europe is strained. While temperatures are forecast to remain above normal over the next two weeks, forecasts later in July point to below to normal range. While yesterday’s EIA report was in line with expectations at 98 bcf, it still remains above average with next week’s report expected to show an injection of 84 bcf compared to the five year average of 70 bcf for the same period. Given the high production levels; if LNG shipments do begin to fall then values have potential to weaken back to recent lows near 2.17 and possibly the 2.00 level before stabilizing.
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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