Commodity Corner: Morning Comments

Good morning,


DXM0  100.455  +0.397              GCM0  1679.0  -32.2                                  ESM0  2757.25  -49.25                  CLM0  15.86  -4.57




Really not much else to say, regarding yesterday’s trade and what is shaping up to be a continuing theme today, the last trading day for the May contract (CLK0).  By now, everyone is aware of the story of the delivery squeeze on the May contract, with a severe lack of storage facilities available.  Longs were scrambling to find the emergency exit!  Open interest came in to yesterday’s session at over 100k.  This morning, the OI in CLK0 is just over 15k.  Of course, as May got pummeled, it took the June contract a long for the ride to a degree.  June futures did manage to hold the $20 level in yesterday’s trade.     


Following yesterday’s utter destruction of the entire oil market, prices have managed a bounce in a somewhat equally explosive fashion.  When the CME announced yesterday that oil futures could in fact trade negative (at the time CLK0 was approximately trading around $10) prices then proceeded to spend the remainder of the session testing this notion out.  It began as a rather methodical sell-off, but once the $5 level was breached, the selling appeared to pick up steam.  The illiquidity of the May contract certainly aided in the dramatic drop.  When $0 was finally taken out, prices quickly fell to the -$40 area (CLK0 settled -$37.63).  Recognizing the exhaustive sell-off took prices beyond what anyone could have imagined, the May contract opened up at -$16.74 and proceeded to march back into positive territory (high is $2.54).  However prices have now moved back south of the Mason-Dixon line. 


The focus for oil has now turned to the June contract, as the stagnation of the global economy is expected to carry on into the beginning of summer at least.  With the supply / demand imbalance most likely only going to get larger, the oil storage issue will be a problem for many of the front futures contracts, as their turn for delivery arrives.  The June contract specifically has now come under sharp pressure overnight, having taken out the $20 level and trading down to below $12 ($11.79). 


While governments and traders alike are looking for solutions, the reality is that it will take a long time for the economy to recover.  President Trump is trying to get 75m barrels of oil moved to the strategic reserve to help a bit.  It is safe to assume further discussions about additional production cuts from OPEC+ and other producing countries also could happen.


Futures calendar spreads have become quite active, as long positions attempt to avoid getting caught in a potential squeeze down the road.  Looking at futures open interest, many June positions are already getting moved further out the futures curve.  Looking at the open  interest figures coming in today, CLM0 OI is 582k;  CLN0 OI is 367k; CLZ0 is 298k.


The rest of the asset classes, while they may have some stories of their own to dictate some of the price action, the fate of the oil complex will most likely capture all of the markets’ attention in some manner. 


Some quick points:


Gold prices are under pressure today, currently down approximately $28 and having been down $45 from settle.  This selling could be driven by the need to raise cash for margin purposes, given the move in oil yesterday.


Corn is working its way down towards $3, as ethanol and big acres push prices down.  Soybeans are also working their way down towards $8.  Lackluster demand and also big acres weighs on prices there.  Wheat is around unchanged, but has been the star of the complex of late.  Russia putting a curb on export totals, and weather related production concerns out of the Black Sea and Europe and helped the US wheat.  US wheat is poised to make a bigger imprint in the export market, as its prices are comparable and with the export restrictions elsewhere.  Following last week’s freezing temperatures across the Plains, yesterday afternoon’s conditions report showed a decline in the Good to Excellent rating of 5%, to 57%. 


Sugar is sharply lower today, as the oil and gas story greatly reduces incentive to produce cane ethanol.  Cotton prices are also down sharply on an expected dramatic drop in demand.  The rest of the commodity complex is also being pulled lower on the abysmal expected demand story, that is being highlighted in the oil trade. 


While the equity market appeared to be ignoring what was happening with the May oil futures late last week, and even yesterday, the fact that this is panic selling is now being carried into the other oil futures contracts is pressuring equity markets.                  


Technical Moving Averages:

Product               50 day                100 day               200 day

SN0                      881.75                   913.00                   928.25

CN0                      361.75                   378.50                   395.50

WN0                    539.00                   546.25                   529.50

KWN0                  475.00                   478.50                   466.75

MWN0                536.75                   545.75                   552.50

SMN0                  305.3                     306.7                     311.4

BON0                   28.31                     30.83                     30.76

CLM0                   36.50                     46.72                     50.38

GCM0                  1630.9                   1582.4                   1543.5

LHM0                  68.475                   77.240                   83.130

LCM0                   96.195                   106.675                 109.075

KCN0                   114.75                   119.25                   114.45

CCN0                   2511                       2569                       2500

CTN0                   59.59                     64.78                     64.74

SBN0                   12.25                     13.02                     12.92

JON0                    105.95                   105.40                   108.75

HGN0                  240.80                   258.00                   261.80

HOM0                 127.02                   156.93                   170.71

XBM0                  110.40                   145.50                   159.60

NGM0                 1.887                     2.037                     2.194






Michael Clifford


141 W Jackson Boulevard                             

Ste 1065                                                              

Chicago, IL 60604                                              

Trean Group, LLC