The petroleum complex came under pressure in overnight trade as weakness in equities linked to a spike in COVID cases raised fears the recovery in global economic growth, evident in late May, might slow. Offsetting these fears and encouraging buying at the lower levels was the increase in Chinese industrial output, which rose 4.4 percent above a year ago after falling 13.5 percent in the first quarter. Support was also traced to the late strength in equities and hope non-compliant members of OPEC+ were poised to cut production in line with targets ahead of the monitoring committee meeting scheduled for Thursday.
Also being watched is the DOE report which is expected to show crude inventories building by .5 mb, distillate stocks increasing by 2.7 mb and gas stocks off .2 mb. Refinery Utilization is expected up .9 percent to 74.
Although the potential for demand to recover as economies open up has helped underpin values, how quickly it recovers continues to be a key consideration. The monthly reports by the International Energy Agency on Tuesday and the OPEC on Wednesday should help clarify prospects with respect to consumption in key areas such as China, India and the US. Ultimately how quickly the market can be re-balanced with excess inventories being drawn down will determine the outlook for prices. Of critical concern and has been the reduction in refinery runs, with utilization at only 73.1 percent compared to 93.2 percent last year. Although the pickup in disappearance levels of gasoline has supported the cracks, they remain well below year ago levels. The August gasoline crack moved up to as high as 13.00 recently. The market will need to sustain steady increases in gasoline disappearance to draw down excess inventories in order to maintain margins above the 9.00 level in the August crack. Recent reports of increased refining in China appear to reflect purchases of cheap crude over the past few months when prices were significantly lower. The refining of this crude and the production of products including gasoline could burden the Asian products market unless consumption rates can increase significantly to absorb these supplies.
Prices continued to succumb to selling pressure as new lows were made in the July through October contracts. Moderate near term temperatures and weak demand for LNG cargoes initiated the weakness. Macro fears emanating from signs of COVID-19 cases increasing in some areas have rekindled concerns regarding the pace of demand recovery and added to the pressure, while production has stubbornly held steady in the face of the demand issues. Friday's Baker Hughes report showed an increase of 2 gas rigs, further fueling concern that production will stabilize. With the weak action today, the May contract lows near 1.50 now become a potential target, but with weather warming into the second half of the month we expect some better support to emerge as the week wears on, with potential for a recovery up to 1.84 and possibly still a chance at 1.90 ahead of the July expiration.
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 risk of loss in trading futures and options can be substantial. Past results are not indicative of future results or performance. 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 position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to ADMIS. Copyright ADM Investor Services, Inc. This matter is intended to be a solicitation.
Contact Us Today
Get free guides and special offers in the Resource Center.
© 2018 Archer Financial Services, Inc.
This is not a solicitation of any order to buy or sell, but merely a collection of information related to Archer Financial services and commodities trading provided by Archer Financial services. Any statement of facts herein contained are derived from sources believed to be reliable, but are not guaranteed as to accuracy, nor do they purport to be complete. No responsibility is assumed with respect to any such element, nor with respect to any expression of opinion herein contained.
The risk of loss in trading futures and options on futures can be substantial. Each investor must carefully consider whether this type of investment is appropriate for them. Past performance is not necessarily indicative of future results.