Oil Weakens As Risk-Off Sentiment Grows

May 19, 2021 12:00 PM
Oil prices sold off hard after a Russian diplomat claimed there was a significant breakthrough in world power
The oil market awaits the Energy Information Administration supply report
"The warmer-than-normal weather forecast limits downside price risks for natural gas"
Energy Report

Energy Report

The Phil Flynn Energy Report 

Russian Confusion

We’ve heard a lot about Russian collusion, but what about Russian confusion? Oil prices sold off hard after a Russian diplomat claimed there was a significant breakthrough in world power and Iranian nuclear talks, and that a major announcement was going to happen today. Later on, the envoy said that he was confused or taken out of context, but who really knows? Russian is hard to accurately translate.

Yet, at a key technical trading point, the report took the winds out of the sales of the oil market, which was in breakout mode. Reports that the beleaguered and hacked Colonial Pipeline had some communication issues also raised fears that maybe there were some leftover issues with the company's computer system after the hack. The pipeline is back online and the odds of a quick Iran deal is off the table; reports claim that Iran is giving support to Hamas, which would be a breach of the agreement.

Oil is also weak on the mild risk-off attitude that’s being cooked up with talk of inflation fears, as well as the old “Covid-19 concerns” reasoning. Commodity pressure is also being felt with China, which has been driving up demand. The country is in desperate need of a lot of commodities and is looking at ways to cool red hot prices. The Chinese Premier Li Keqiang is chairing state council meetings, looking at ways to stabilize prices and supplies of commodities in order to maintain a stable economy. 

The oil market also awaits the Energy Information Administration (EIA) supply report. Last night, the American Petroleum Institute showed crude inventories increased by 620,000 barrels, while gasoline inventories fell by 2.8 million barrels and distillate stocks fell by 2.6 million barrels. Those draws in products should lend support to the complex if the EIA agrees. Expect more oil to be released from the SPR.

Andrew Weissman of EBW analytics reports the following:

The June natural gas contract surged 14.8¢ higher Monday—breaking out of the $2.91-$2.97/MMBtu range for the first time since assuming the front-month position—following a 17 CDD bullish shift in the 1-15 day weather forecast. While the front-month promptly returned two-thirds of Monday’s gain on Tuesday, the pop higher is representative of upside potential for natural gas. Following Monday’s price increase, the gas market still remains 2.3 Bcf/d undersupplied through winter 2021-22.

While steep gains are less likely until late June, a bullish spark could quickly ignite NYMEX futures at any time. Near term, the warmer-than-normal weather forecast shift accelerates early-season cooling demand and narrows the spring shoulder season, limiting downside price risks for natural gas.

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About the Author

Phil Flynn is a senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. Phil is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets.