Commodities Weekly: Oil prices firmer as Iran sanctions set to kick in

Oil prices are edging higher on supply concerns involving both Saudi Arabia and Iran while hot, dry weather across the northern hemisphere is having an effect on anticipated harvests in the agricultural sector and also increasing expected demand for energy as the world tries to keep cool. However, ongoing trade tariff wars continue to be a damper on rallies for some products.

Energy

OIL prices edged higher, with WTI rising to a near one-week high yesterday, after the Trump Administration confirmed that the first phase of new Iran sanctions will go into effect later today. In addition, OPEC sources suggested that Saudi Arabia’s supply had unexpectedly fallen in July.

Prices continue to hold above the 100-day moving average on a closing basis, which has held since June 19. The Brent/WTI spread has dipped marginally below the 4.0 mark this month. The weekly EIA crude inventory data is due tomorrow and is expected to show a drawdown of 1.17 million barrels, according to the latest survey of analysts, compared with an increase of 3.8 million barrels last week.

Brent/WTI Daily Chart

Source: Oanda fxTrade

An anticipated hot spell across Northeastern US in the coming weeks has built expectations of an increase in demand for NATURAL GAS for cooling purposes, and has helped propel prices to a near five-week high. There appears to be little reaction to news that China said it is considering imposing a 25% tariff on imports of US natural gas as part of its retaliation against the US’ proposed tariffs on $200 billion worth of Chinese imports.

Natural Gas inventories rose to 35 billion cubic feet in the week to July 27, according to EIA data released August 2. The commodity is currently trading at 2.875 after closing above the 55-day moving average yesterday, the first time since July 3.

Precious metals

GOLD continues to struggle near 18-month lows, just above the 1,200 level, as the US dollar reigns supreme. Speculative net long futures positions slid to 35,337 contracts in the week to July 31, according to CFTC data released Friday. That is the lowest net long position since January 2016. SPDR Gold Trust GLD, the world’s largest gold-backed exchange-traded fund, also said its holdings fell 0.78% to 788.7 tonnes on Monday from 794.90 tonnes on Friday, Reuter reports.

Gold has fallen another 1.6% this month, set for a fifth straight monthly decline and is down 11.8% from the peak in April.

SILVER continues to be capped by the 55-month moving average and is facing its third straight monthly decline. Speculators’ bullish positioning increased by 2,326 contracts in the week to July 31, according to the latest CFTC data. The gold/silver (Mint) ratio is currently sandwiched between the 55- and 100-day moving averages at 78.17 and 78.96, respectively.

Gold/Silver (Mint) Ratio Daily Chart

Source: Oanda fxTrade

PLATINUM has traded sideways so far this month with activity confined to 812-841 parameters. The downward-sloping 55-day moving average continues to be an upside barrier and has capped the upside since March 1. It’s currently trading near mid-range at 824.10.

PALLADIUM is currently retracing the rally seen late-July and currently at 907.96, holding just above the 50% retracement level of that July 19-25 up-move, which is at 901.24. Traders increased their net long speculative positions in the precious metal for the first time in four weeks in the week through July 31, according to CFTC data.

 

Base metals

COPPER is still being dogged by escalating trade wars amid a cloudy outlook for global growth. The industrial metal survived a test of the 55-month moving average last month and that technical level, currently at 2.6964, should continue to provide support. The July low of 2.65 would be the next support level. Speculative accounts reduced their net long positions by 1,143 contracts to 8,224, the least since the week of May 9, 2017.

The pending strike at BHP’s Escondida copper mine in Chile, the world’s largest, appears to have been averted as the company announced Monday it had formally requested government mediation with the union in its latest wage negotiations. The two parties have until August 13 to reach an agreement, with a possible extension for a further five days.

Agriculturals

SUGAR continues its rebound from three-year lows as dry weather in growing regions affects anticipated harvests. A recent report suggested sugar output from the EU could fall as much as 7.8% from a year ago due to this effect. Sugar is poised for is third consecutive up day after hitting an apparent near-term bottom of 0.10201 on August 2. It’s currently trading at 0.10814 with resistance seen at the 55-day moving average, currently at 0.1153.

SOYBEANS are perhaps one of the hardest hit commodities in the trade tariff wars since it was almost first on the list. The commodity staged a near 12% rally in July from near-term lows as analysts anticipate continued demand, despite China reportedly seeking alternative sources, including home-grown products. August has seen the commodity consolidating that move.

An example of this continued demand is seen in data released by the United States Department of Agriculture yesterday that showed a cargo of soybean left US shores for China, despite the introduction of China tariffs. However, Xinhua News Agency reported Sunday that China could reduce imports of US soybeans by as much as 10 million tons as it seeks alternative sourcing and alternative products.

The global hot spells that have fueled Natural Gas demand have also caused droughts in WHEAT-growing regions, wreaking havoc with global harvests, which are seen shrinking to a three-year low. Wheat prices hit a three-year high earlier this month and are currently testing the 100-month moving average resistance, which is at 5.7657. The commodity has not closed above this moving average since April 2014.

Wheat CFD Monthly Chart

Source: Oanda fxTrade

Commodities Weekly: No traction for commodities as the dollar softens

The US dollar is facing a mild period of weakness ahead of a slew of central bank rate decisions and key data this week. Despite the dollar’s retracement, commodities have mostly failed to capitalize. Precious metals are still pressured by a gloomy demand outlook and news that growth in China’s manufacturing sector had slowed for a second month has added to the pressure. Oil has rebounded amid supply concerns, while crops are mostly suffering from lingering excess inventories and supply.

Energy

CRUDE OIL has pushed up to more than two week highs as supply issues hold the market’s attention. Reports that some North Sea fields are shutting down due to labor strikes, ongoing Middle East geopolitical tensions threatening to disrupt Saudi Arabia supply lines, continued difficulties with Venezuela’s output and the looming imposing of Iran sanctions are all contributing to the bid tone, which has seen WTI rise from $67.5 to $71.09 yesterday.

According to a recent Reuters survey, production from OPEC members hit a 2018 peak in July, one month after the new OPEC accord was struck in Vienna. Following the OPEC decision, Kuwait and the United Arab Emirates raised output by 80,000 bpd and 40,000 bpd respectively in July, the survey found with all members pumping a total of 32.64 million barrels per day, up 70,000 bpd from June.

European Commission’s Jean-Claude Juncker met with US President Donald Trump last week for talks aimed at avoiding a trade war. One of the outcomes of the meeting was that the EU agreed to buy more US NATURAL GAS to diversify its energy supply. Natural Gas looks set for its sixth straight day of gains as it climbs from two-month lows hit earlier this month. The first technical resistance point comes at 2.8424, which is the 200-day moving average, with the 55-day moving average close behind at 2.8594.

Precious metals

GOLD continues to be top heavy near the lower end of this month’s range. Even with the US dollar giving back some of the recent gains ahead of the FOMC meeting on Wednesday (NYT), gold has struggled to make any headway. Latest data from CFTC shows speculative accounts reduced their net long positions in gold by 9,200 contracts in a snapshot taken July 24. Gold is currently trading at 1,221.8 with support expected at the recent low of 1,211.1 and resistance at the 55-day moving average at 1,266.2.

SILVER likewise is unable to shake off the summertime blues and is also trading at the lower end of the month’s range, facing its second monthly decline in a row. The gold/silver ratio is still holding above the 55-month moving average, currently at 73.05, and has traded above it on a closing basis since March 2013.

Gold/Silver Monthly Chart

Source: Oanda fx Trade

Slowing industrial demand for PLATINUM continues to weigh on prices as the automotive industry continues its shift away from diesel engines. The precious metal has been on a steady decline this year, dropping almost 23% from its peak in January and the fundamental outlook suggests more declines to come. Speculative accounts are still maintaining net short futures positions, according to the latest Commitment of Traders report as at July 24.

PALLADIUM attempted a technical rebound early last week but this stalled on Thursday and is now in consolidation mode below the 55- and 100-day moving averages at 962.53 and 968.11, respectively. Speculative accounts were net sellers of futures contracts in the week up to July 24, according to the latest CFTC data.

Base metals

COPPER continues in the doldrums with prices struggling to extend the slight rebound from one-year lows near 2.65. Reuters reported Monday that Brazil’s geological service is considering auctioning off rights to six previously unexplored areas next year. It is reported that these areas could be significant sources of copper, gold and minerals.

Agriculturals

A bumper SUGAR harvest in Mexico was completed early-July with a 39,000 metric ton increase from previous estimates, according to the latest USDA sugar and sweeteners outlook. Most of this will be destined for international sugar markets and this has helped keep sugar prices under pressure this month. Sugar prices today hit 0.10616, the lowest level since September 2015. Momentum indicators on the charts suggest further downside is possible, and the next support level can be found at the August 2015 low of 0.10018.

SOYBEANS saw heavy demand in June as exporters rushed to deliver orders ahead of the introduction of import tariffs by China as part of the first tranche of tariffs in the US and China trade war. Even so, prices collapsed in the month amid the combined pressures of favorable US growing conditions, increased sown acreage and inventory overhang. July has seen prices rebound from mid-month lows to stand at 8.733 currently. On the daily chart, stochastics momentum is starting to look stretched and the soybean CFD seems to be struggling to breach the 8.757-8.783 area, which has capped gains on six separate occasions since late June.

Soybeans Daily Chart

Source: Oanda fxTrade

In its July WHEAT outlook, the US Department of Agriculture reported that vastly improved weather conditions from a year ago have helped lift projected yields for spring wheat in the 2018/19 season. Expanding US production and a reduction in production from overseas competitors suggest the 2018/19 crop could see higher exports, the report says. Despite the increased supply, wheat is retesting the June high of 5.421 and, if breached, would take wheat to a more than one-year high. The commodity is currently trading at 5.328 after touching 5.405.

CORN is continuing its strong rebound from 22-month lows having risen in eleven out of the last twelve trading sessions. The crop is currently at 3.603, testing the 55-day moving average at 3.6159 for the first time since June 4.

Commodities Weekly: Gold saved by dollar’s retracement

Overall, the first salvos in the US-China trade war has undermined confidence in the metals space, with traditional safe-haven assets struggling for traction as other havens offer better returns. The energy sector has been driven higher by supply concerns, while the agricultural sector remains broadly under pressure.

Precious metals

Gold had been at the mercy of the US dollar’s firmness during the second half of June, struggling to maintain its label as a safe haven in times of trouble. The precious metal slumped almost 5.5% vs the dollar from its recent peak on June 13 to the near-term low on July 3. The rebound so far has taken the metal to the 38.2% Fibonacci level of the drop and is now consolidating at 1,257.513.

Gold Daily Chart

Source: Oanda fxTrade

Latest data from Chicago’s Commitment of Traders report, with the snapshot taken as of July 3, shows that managed money accounts were net sellers of 1,230 gold contracts from a week prior and short positions exceeding long positions by 1,254 contracts.

Silver has also tracked hold’s progress to some degree during the period. The sell-off in the second half of June saw a bullish divergence pattern unfolding on the stochastics momentum indicator, which suggested a near-term base could be forming. Sure enough, we have seen the rebound unfolding this month and the next resistance point can be found at the 55-DMA, currently at 16.4320.

Silver Daily Chart

Source: Oanda fxTrade

The gold/silver (Mint) ratio seems to have built a near-term base mid-June and has since rallied to test the 55-DMA at 78.4841. It is also oscillating around the 200-DMA at the moment during its consolidation period.

Platinum is staging a modest recovery from its near-5 month downtrend after the metal traded below the 800 mark at the start of the month, the first time since December 2008. The 55-DMA continues to cap to the upside while the July 3 low of 798.365 should hold in the near-term.

Palladium is trading near the middle of its recent 3-month range. It is currently retracing the uptrend started at the beginning of 2016 and has so far managed a correction as deep as 21%. Palladium is currently trading at 954.853.

Base metals

Copper has fallen just over 6% so far this month to touch its lowest level since July last year. The base metal is testing the 100-week moving average, which has held on a closing basis since November 2016. However, investors are keeping an eye on labour negotiations at BHP Billiton’s Escondida mine in Chile, the largest in the world. The current contract expires at the end of this month and any signs that negotiations become protracted and an agreement may not be reached could have implications for copper supply and result in higher prices.

Energy

Natural Gas continues to struggle to gain traction after the hefty slump in February this year. As we are in the midst of the summer months in the northern hemisphere, pressure should remain on gas with near-term support found at the 100-DMA at 2.7914.

Latest data from the US Energy Information Administration (EIA) storage change released last Friday showed an increase of 78 billion cubic feet, higher than the estimate of 75 billion and up from the previous week’s 66 billion. Stocks were 717 billion cubic feet less than this time last year.

Crude oil prices have been edging higher since the OPEC meeting last month amid supply concerns and steady demand. Brent prices received an additional boost following news today that oil workers in Norway are scheduling a strike later today after recent wage talks failed. Coupled with supply issues from Libya after oil port closures, Iran heading toward US sanctions, and ongoing issues with Venezuela, the path oil least resistance for oil prices still appears to be higher. West Texas prices scaled $75 p/barrel last week, while the 100-month moving average is at 74.6907. West Texas CFD is now trading at 74.094 and the Brent/WTI spread is about 4.3 pips.

Brent/WTI Spread Chart

Source: Oanda fxTrade

Agriculturals

Sugar continues to feel the pressure of rising global stockpiles amid surging production in Asia, and slowing demand. Money managers added more than 30,000 contracts to short positions, according to the latest CFTC data as of July 3. As with any crop, the weather could play a significant role and the second half of the year could see concerns about another El Nino weather pattern in Asia emerging. That could be the only hope for bulls. Sugar is now at 0.11165

Corn is attempting to recoup some of June’s heavy losses, and having a tough time of it. This despite a June 29 report from the US Department of Agriculture that showed total acreage for corn and soybeans down 1% from a year ago.

With Soybeans a target for China import tariffs in retaliation for the Trump administration’s actions, soybeans are struggling to bounce strongly off recent 9-1/2 year lows. Friday’s low of 8.334 should provide near-term support while the June 25 high of 8.961 will be the next resistance point.

Wheat broke a three-day rising streak on Monday and has continued the retracement today. Daily momentum has turned bearish, suggesting the fall has a bit further to g

Trade war -will cooler heads prevail ?