Oil Remains Volatile Ahead of the OPEC Meeting

ETF Securities Commodity ETP Weekly Oil Remains Volatile Ahead of the OPEC Meeting

Oil ETPs see outflows as investors’ expectation of production cuts recede.

ETFS Daily Leveraged Coffee (LCFE) sees its highest ever inflow since inception in 2008.

IMF’s payment extension eases concern of immediate Greek default.

ETFS Daily Leveraged Natural Gas (LNGA) sees US$2.9mn inflows, the highest in 4 weeks on the back of bargain hunting.

We are hosting a webinar on the 8th June to cover Friday’s OPEC meeting featuring Amrita Sen, a renowned oil analyst from Energy Aspects.

The premature gains in oil prices that we had seen since March 2015 started to unravel last week with WTI and Brent falling 5% and 6% respectively, before recovering somewhat on Friday. A firmer US dollar had weighed on all commodities. Added to that is a growing consensus that OPEC will not cut production at its June 5th meeting. We will be analyzing the outcome of that meeting in a webinar on June 8th with Amrita Sen from Energy Aspects. To register for the webinar please click here . On Friday we saw a 5% rally in WTI as the market read the larger than expected contraction in US rigs that week as a sign that US producers remain price sensitive.

Oil ETPs see outflows as investors’ expectation of production cuts recede. We have long argued that the gain in prices since March were premature given the lack of evidence of supply tightening. US shale oil rigs have been shut off at break neck speed in recent months, but that trend has come to halt with prices firming. Other high-cost producers will also be cutting back on production, but that process will take some time given the higher lead times. The OPEC is no longer trying to guarantee the rate of return for producers. It wants market share. It is increasingly likely that it will not cut production at its June 5th meeting. We saw US$48.5mn of outflows from long Brent and WTI ETPs, while profit taking withdrew a US$5.1mn from short oil ETPs. Many investors think there will be a better entry point non-US producers cut back on production and tighten global supplies.

ETFS Daily Leveraged Coffee (LCFE) sees its highest ever inflow since inception in 2008. With the price of coffee falling a further 2.6% last week, (29.0% y-o-y), investors saw another bargain hunting opportunity. While the price had rallied excessively in 2014 in response the drought in Brazil at the time, the recent crash in prices appears equally excessive. The 2014 drought which lasted into the February 2015 had irrevocably damaged Brazilian coffee bushes. Although strong rain since February will help recover yields by some margin, the bearish sentiment towards the commodity appears disproportionate. While the USDA and CONAB have revised upward their production estimates from Brazil, leaf rust fungus is rife in Central America, threatening to wipe out production in some of the smaller producing countries. El Niño, however remains a wild card. While the meteorological organisations have declared that the weather pattern will last through the Southern hemisphere winter, its intensity is still unknown. An El Niño could bring a warmer, dryer winter to Brazil, reducing frost damage, which could help the crop.

IMF’s payment extension eases concern of immediate Greek default. While the IMF allowed Greece to delay its 5th June payment to the end of the month, it also acknowledged that the country could leave the Euro area. Gold’s pullback of 1.7% and gold ETP outflows of US$11.6mn last week seem somewhat premature given the that the debt negotiations over the weekend have ended with no resolve.

ETFS Daily Leveraged Natural Gas (LNGA) sees US$2.9mn inflows, the highest in 4 weeks on the back of bargain hunting. An unexpectedly strong gain in gas storage drove prices down 8.2%. However, with summer weather likely to drive demand for gas higher in coming months, investors expect prices to recover.

Key events to watch this week. US payrolls will be the focus of investors this week as the Federal Reserve will remain very data dependent in its rates decisions.

Video Presentation

Nitesh Shah, Research Analyst at ETF Securities provides an analysis of last week’s performance, flow and trading activity in commodity exchange traded products and a look at the week ahead.

Important Information

This communication has been provided by ETF Securities (UK) Limited (”ETFS UK”) which is authorised and regulated by the United Kingdom Financial Conduct Authority.