Energy and Soft Markets Commentary Monday June 19, 2017 DAILY ENERGY COMPLEX COMMENTARY 06/19/17

Transcription

1 Energy and Soft Markets Commentary Monday June 19, 2017 DAILY ENERGY COMPLEX COMMENTARY Energy prices remain vulnerable especially natural gas OVERNIGHT CHANGES THROUGH 6:06 AM (CT): CRUDE +17, HEATING OIL +45, UNLEADED GAS +60 CRUDE OIL MARKET FUNDAMENTALS: The strength of the energy markets at the end of last week was probably the result of short covering, as the markets were short term oversold in the wake of last week's debacle washout. However, as in a number of other commodity markets, the energy complex is fully aware of a softening of the US economy especially with implied gasoline demand figures over the last two weeks coming in soft. Traders should also keep in mind that the energy complex has been led on the downside by the gasoline market, which is weak in the face of a strong (seasonal) demand period and that has to be scaring off bottompickers in crude oil. While the oil market is finding some support from news of declining Saudi crude exports that news is relatively old as it relates to April and that news is also discounted in the wake of comments from the Saudi's that it will "take some time" for the production cuts to work into the world supply situation. With the weekly rig operating count showing another build in activity last Friday and that news representing the 22nd week of additional rigs being brought in operation that should serve to thicken overhead resistance on the charts. If there is a silver lining in this week's rig-count, it is a possible sign that the expansion is slowing. In other words, the slide of $7 per barrel since the late May highs and the 2017 high to low slide of $14 a barrel should be discouraging exploration in the US. While the COT positioning in crude oil has come down consistently over the last several weeks, it remains at a relatively vulnerable level of 428,000 contracts. However, that positioning is clearly overstated as a result of the $2.50 slide in crude prices after the report was compiled. The Commitments of Traders Futures and Options report as of June 13th for Crude Oil showed Non-Commercial and Non-reportable combined traders held a net long position of 428,659 contracts. PRODUCT MARKET FUNDAMENTALS: At least in the short term, it is difficult to discount a two week pattern of declining implied gasoline demand readings, but it should also be noted that implied gasoline demand three weeks ago did register a new all-time high. We would also like to note that the specs in heating positioning reports have now shifted from a net long to a net short and that might for the time being signal a sold out condition. On the other hand, macroeconomic conditions in the US have softened, the US has hiked interest rates again and gasoline prices seem to be the most vulnerable of the complex. Fortunately for the bull camp, the most recent commitments of traders report showed a net spec and fund long in unleaded of only 38,000 contracts and that reading is overstated because of the additional 6.50 cent decline in prices after the report was compiled. With the September RBOB contract reaching down to the August 2016 lows and the market seeing liquidation in open interest and slightly higher volume, the odds of a technical bottom have improved. The Commitments of Traders Futures and Options report as of June 13th for Gasoline (RBOB) showed Non-Commercial traders were net long 41,781 contracts, a decrease of 8,608 contracts. Non-Commercial and Non-reportable combined traders held a net long position of 38,041 contracts. This represents a decrease of 12,628 contracts in the net long position held by these traders. The Commitments of Traders Futures and Options report as of June 13th for Heating Oil showed Non-Commercial traders were net short 695 contracts, an increase of 7,500 contracts which represents a change from a net long to a net short position. Non-Commercial and Non-reportable combined traders held a net short position of 3,812 contracts. These traders have gone from a net long to a net short position.

2 NATURAL GAS: Apparently periodic heat throughout large portions of the US is now being seen as bearish, as extreme heat is to be followed by normal heat and that only equates to slightly above average demand. Slightly above average demand might be supportive of prices if overall supplies weren't burgeoning! Clearly open interest has come down from the May high and that might indicate a possible balancing of the spec long position especially with the latest COT positioning report showing a net long of only 27,000 contracts from a peak this year of 85,000 contracts. However the failure to hold $2.972 early today shifts the technical condition back in favor of the bear camp and a sub-$2.90 trade might be in the cards. In order to throw off the bearish fog in the market probably requires entrenched "extreme" heat and perhaps better overall macroeconomic psychology. It could be difficult to inspire anything more than a technical short covering bounce as the fear of excess supply remains entrenched in market psychology. However, prices have become oversold and there are signs that the rig operating count build pattern is starting to slow. Unfortunately, demand expectations have also softened and visible supplies as reported by both the API and EIA lately confirm the supply side problem remains. While a normal retracement of the May and June slide would allow for a bounce to $47.62, we doubt the market will be able to forge that size of a bounce. A more logical corrective targeting for September crude oil is $46.42 and a critical pivot point to start the new trading week is $ Energies Crude Oil 403,363-13, ,660 +1,324 25, ,786 Heating Oil ,500 3, ,215-3,117-2,716 Natural Gas -4,305-1,374-27,210-2,735 31,516 +4,112 Gas (RBOB) 41,781-8,608-38, ,628-3,740-4,020 OTHER ENERGY CHARTS: ENERGY COMPLEX TECHNICAL OUTLOOK: CRUDE OIL (AUG) 06/19/2017: Momentum studies are declining, but have fallen to oversold levels. The market's short-term trend is negative as the close remains below the 9-day moving average. It is a mildly bullish indicator that the market closed over the pivot swing number. The next downside target is The next area of resistance is around and 45.60, while 1st support hits today at and below there at HEATING OIL (AUG) 06/19/2017: Daily stochastics declining into oversold territory suggest the selling may be drying up soon. The close below the 9-day moving average is a negative short-term indicator for trend. The market setup is supportive for early gains with the close over the 1st swing resistance. The next downside target is now at The next area of resistance is around and , while 1st support hits today at and below there at

3 RBOB GAS (AUG) 06/19/2017: Daily stochastics are trending lower but have declined into oversold territory. The market's short-term trend is negative as the close remains below the 9-day moving average. The market setup is supportive for early gains with the close over the 1st swing resistance. The next downside objective is The next area of resistance is around and , while 1st support hits today at and below there at NATURAL GAS (AUG) 06/19/2017: Rising from oversold levels, daily momentum studies would support higher prices, especially on a close above resistance. A positive signal for trend short-term was given on a close over the 9-bar moving average. The downside closing price reversal on the daily chart is somewhat negative. The close over the pivot swing is a somewhat positive setup. The near-term upside objective is at The next area of resistance is around and 3.120, while 1st support hits today at and below there at DAILY TECHNICAL STATISTICS 9 DAY RSI RSI SLOW STOCH D SLOW STOCH K 4 DAY 9 DAY 18 DAY 45 DAY 60 DAY CLOSE ENERGY COMPLEX CLAQ CLAU HOAQ HOAU RBAQ RBAU NGAQ NGAU Calculations based on previous session. Data collected 06/16/2017 Data sources can & do produce bad ticks. Verify before use. DAILY SWING STATISTICS Contract Support 2 Support 1 Pivot Resist 1 Resist 2 ENERGY COMPLEX CLAQ7 Crude Oil CLAU7 Crude Oil HOAQ7 Heating Oil HOAU7 Heating Oil RBAQ7 RBOB Gas RBAU7 RBOB Gas NGAQ7 Natural Gas NGAU7 Natural Gas Calculations based on previous session. Data collected 06/16/2017 Data sources can & do produce bad ticks. Verify before use. DAILY COCOA COMMENTARY Potential downshift in West African mid-crop prospects Cocoa has lifted well clear of its late April/early May lows, but it cannot seem to shake off the volatile price pattern of over the past few weeks. While it may take time to repair a lukewarm demand outlook for North America and Europe, prices may find a fresh source of support from a potential downshift in the outlook for the West African mid-crop. September cocoa found mild early support on Friday, but then it saw a swift downdraft as it traded down to $2,014 (2.6% lower) before finishing the session with a significant loss. For the week, September cocoa finished with a loss of $10 (0.5% lower), the first negative weekly result in three weeks. Recent

4 wet weather over West African growing regions has caused flooding problems. It may also spread mold and disease. The market will pay close attention to upcoming West African mid-crop output figures to see if the region can live up to lofty production expectations. Ghana's Cocoa Board (Cocobod) will hire up to 30,000 temporary farm workers by 2018 for a nationwide project to cross-pollinate their cocoa trees by hand. This initiative comes as their government tries to boost cocoa pods to per tree from currently. Friday's Commitments of Traders report showed a moderate decrease in the speculator net short position, but it is still large enough to fuel additional short covering. The report showed that as of June 13th non-commercial traders in were net short 20,350 contracts in futures and options, an increase of 20 contracts in their net short position for the week. Noncommercial and nonreportable traders combined held a net short of 12,594 contracts, a decrease of 3,338 contracts in their net short position. A key factor early this week could be the weekly update on Ivory Coast port arrivals. If there is relatively little progress made over last year's El-Nino impacted total, cocoa prices could find their footing and put together a recovery move. Near-term support for September cocoa comes in at $1,990, with resistance up at $2,077. Softs Cocoa -20, ,594-3,338 7,756 +3,358 COCOA TECHNICAL OUTLOOK: COCOA (SEP) 06/19/2017: A bearish signal was triggered on a crossover down in the daily stochastics. Momentum studies trending lower from overbought levels is a bearish indicator and would tend to reinforce lower price action. The close below the 9-day moving average is a negative short-term indicator for trend. The close below the 2nd swing support number puts the market on the defensive. The next downside target is now at The next area of resistance is around 2063 and 2109, while 1st support hits today at 1993 and below there at DAILY COFFEE COMMENTARY Additional supply issues could trigger short-covering rebound Sluggish global demand has been a major factor pushing coffee prices to a new 1-year low. But with the market already facing lower Brazilian output, a turnaround in demand prospects could trigger a sizable recovery move. September coffee came under pressure on Friday, as it broke through key support before ending the day with a moderate loss, a new contract low and a new low close for the move. For the week, September coffee finished with a loss of 2.90 cents (2.2% lower). ICE exchange coffee stocks rose by 2,759 bags on Friday. They are now more than 21% higher from the start of this year. US green coffee stocks rose by 224,169 bags (3.2%) during May to reach million. However, the USDA's latest update has 2017/18 global coffee consumption reaching a record high of 158 million bags and global stocks reaching a 6-year low. The USDA has forecast 2017/18 global coffee production at 159 million bags (up slightly on 2016/17), with a 4 million bag decline from Brazil offsetting increased output out of Vietnam and Central America. The USDA also has Colombian coffee

5 output rising slightly, which may be indicating that their production is close to reaching a ceiling. Brazil's 2017/18 coffee harvest was seen at 31% complete as of June 13th compared to 34% last year at this time, according to Safras & Mercado. Coffee's speculator net short position continued to increase in the latest Commitments of Traders report, but it is still below the record high seen in March Friday's COT report showed that as of June 13th non-commercial traders were net short 22,149 contracts, an increase of 3,546 contracts on the week in their net short position. Non-commercial and nonreportable traders combined held a net short position of 17,867 contracts, an increase of 3,093. Mostly dry weather over the next week could help the harvest in key Brazilian Arabica-growing regions reach full speed again. With Brazilian output expected to be down at least 4 million bags from the 2016/17 season, if global were to rebound next season, it would not take much in the way of additional supply issues to trigger a shortcovering rebound. September coffee will have near-term support at , with resistance up at Softs Coffee -22,149-3,546 17,867 +3,092 4, COFFEE TECHNICAL OUTLOOK: COFFEE (SEP) 06/19/2017: Daily stochastics declining into oversold territory suggest the selling may be drying up soon. The close below the 9-day moving average is a negative short-term indicator for trend. The market is in a bearish position with the close below the 2nd swing support number. The next downside objective is now at The next area of resistance is around and , while 1st support hits today at and below there at DAILY COTTON COMMENTARY Oversold but no technical bottom indicator Cotton was higher overnight as the market continued a short covering bounce that began Friday. The steep selloff last week had pushed the market into a near-term oversold condition, but most of the key fundamental factors are still negative and there has been no technical indicator that the market has put in a low. Deliverable stocks continue to expand, and the US and global stocks (outside of China) are expected to increase this year as well. Furthermore, the Commitments of Traders reports are still showing a large net long position held by speculators. ICE certified deliverable stocks increased to 476,100 on Thursday, up from 472,144 the previous day. The latest 6-10 day forecast calls for above normal precipitation and above normal temperatures across the cotton belt, from Texas to the east coast. Last week's crop progress report indicated that this year's US crop is well ahead of last year and well ahead of average, and there doesn't seem to be anything in the recent weather or current forecast to change that.

6 Friday's COT report showed that as of June 13th non-commercial traders were net long 84,729 contracts, a decrease of 11,649 contracts on the week. Non-commercial and nonreportable traders combined held a net long position of 84,886 contracts, a decrease of 15,273. The CIT Supplement report showed traditional trend-following funds (non-commercial, non-cit traders) were net long 70,485 contracts, a decrease of 11,270. The size of the declines in the spec net long positions illustrates the heavy long liquidation that has been pressuring the market recently. Spec traders have dropped some 56,000 contracts from their peak in February, but their net long position is still in a lofty area relative to the past 20 years. Given the steep selloff on Thursday, two days after the COT report was measured, we suspect the actual spec net long is much lower by now. However, with more than 84,000 net long (in Friday's report) and more than 70,000 for traditional trend-following funds, we suspect long liquidation could easily resume. The bulls have little to cling to from a fundamental standpoint, and there has been no technical bottoming indicator, only a short term oversold status. Look for close-in resistance for December cotton at and A 50% correction of the contract low to high move leaves next key support at Softs Cotton 84,729-11,649-84, , ,624 COTTON TECHNICAL OUTLOOK: COTTON (OCT) 06/19/2017: Daily stochastics are trending lower but have declined into oversold territory. The close below the 9-day moving average is a negative short-term indicator for trend. It is a slightly negative indicator that the close was under the swing pivot. The next downside target is With a reading under 30, the 9-day RSI is approaching oversold levels. The next area of resistance is around and 71.73, while 1st support hits today at and below there at COTTON (DEC) 06/19/2017: Momentum studies are still bearish but are now at oversold levels and will tend to support reversal action if it occurs. The market's close below the 9-day moving average is an indication the shortterm trend remains negative. It is a slightly negative indicator that the close was lower than the pivot swing number. The next downside objective is The 9-day RSI under 20 suggests the market is extremely oversold. The next area of resistance is around and 70.68, while 1st support hits today at and below there at DAILY SUGAR COMMENTARY Fresh supply issues could fuel short-covering rebound Sugar prices are well into oversold territory, and it would not take much fresh bullish supply/demand news to trigger a short-covering rebound. However, with Brazil's harvest back to full speed and little chance of an El Nino weather event by the end of the year, prices remain on the defensive. October sugar traded down to a new low for the move at (1.8% lower) on Friday before finishing

7 the session with a moderate loss and a sixth straight decline. For the week, October sugar finished with a loss of 84 ticks (5.8% lower). It has seen only seen 3 positive weekly results in the past 19. There is no rain in the forecast for Brazil's Center-South growing region through the middle of next week, which should minimize delays in harvesting and crushing. So far this year, India's monsoon rainfall crop coverage area has risen 6% from last year at this time (up from 8.8 million hectares last year to 9.3 million this year), according to India's Farm Ministry. As of June 16th, Indian monsoon rainfall was seen at 10% above normal. This is expected to benefit both the 2017/18 and 2018/19 cane crops. Maharashtra, the Indian state most impacted by poor monsoons in 2014 and 2015, is expected to see a 70% jump in sugar output during the 2017/18 season. Sugar's spec net short position saw a healthy increase in Friday's Commitments of Traders report. They are still well below the record high seen in March 2015, but there appears to be plenty of fuel for a short-covering rebound. The report showed that as of June 13th, non-commercial traders were net sellers of 15,683 contracts on the week, being net short 7,121 contracts after being net long 9,562 contracts the previous week. Non-commercial and nonreportable traders combined held a net short position of 15,800 contracts after being net sellers of 14,374 contracts on the week. The better-than-expected results for this year's Indian monsoon combined with a dry forecast for Brazil's Center- South region may weigh on sugar prices this week. With a growing net short position, however, any fresh weather issues for the cane crop in Brazil or the beet crop in the EU could help to fuel a short-covering rebound. Nearterm support for October sugar comes in at 13.34, with resistance at Softs Sugar -7,121-15,683 15, ,374-8,679 +1,309 SUGAR TECHNICAL OUTLOOK: SUGAR (OCT) 06/19/2017: Daily stochastics are trending lower but have declined into oversold territory. The close below the 9-day moving average is a negative short-term indicator for trend. The market tilt is slightly negative with the close under the pivot. The next downside objective is With a reading under 30, the 9-day RSI is approaching oversold levels. The next area of resistance is around and 14.00, while 1st support hits today at and below there at OJ TECHNICAL OUTLOOK: ORANGE JUICE (SEP) 06/19/2017: Studies are showing positive momentum but are now in overbought territory, so some caution is warranted. The market's close above the 9-day moving average suggests the short-term trend remains positive. The market tilt is slightly negative with the close under the pivot. The next upside target is The next area of resistance is around and , while 1st support hits today at and below there at DAILY TECHNICAL STATISTICS CLOSE 9 DAY RSI RSI SLOW SLOW 4 DAY 9 DAY 18 DAY 45 DAY 60 DAY

8 STOCH D STOCH K SOFTS MARKETS COMPLEX SBAV CTAV CTAZ CCAU OJAU KCAU MAN Calculations based on previous session. Data collected 06/16/2017 Data sources can & do produce bad ticks. Verify before use. DAILY SWING STATISTICS Contract Support 2 Support 1 Pivot Resist 1 Resist 2 SOFTS MARKETS COMPLEX SBAV7 Sugar CTAV7 Cotton CTAZ7 Cotton CCAU7 Cocoa OJAU7 Orange Juice KCAU7 Coffee MAN7 Milk Calculations based on previous session. Data collected 06/16/2017 Data sources can & do produce bad ticks. Verify before use. ***This report includes information from sources believed to be reliable and accurate as of the date of this publication, but no independent verification has been made and we do not guarantee its accuracy or completeness. Opinions expressed are subject to change without notice. Any information or recommendation contained herein: (i) is not based on, or tailored to, the commodity interest or cash market positions or other circumstances or characterizations of particular investors or traders; (ii) is not customized or personalized for any such investor or trader; and (iii) does not take into consideration, among other things, risk tolerance, net worth, or available risk capital. Any use or reliance upon the information or recommendations is at the sole discretion and election of the subscriber. The risk of loss in trading futures contracts or commodity options can be substantial, and traders should carefully consider the inherent risks of such trading in light of their financial condition. Any reproduction or retransmission of this report without the express written consent of EFUTURES.COM. is strictly prohibited.