Commodities Weekly: Oil tumbles on supply/demand dynamics

Oil has been the biggest mover this week with the US-China trade war continuing to undermine the global demand outlook, despite an upbeat assessment of the US economy by Fed Chairman Powell. Gold is still struggling to maintain its safe haven status and other metals remain at the mercy of the rampant US dollar, while the agricultural sector remains broadly under pressure.

Energy

Crude oil prices have slumped more than 10% over the past week as the threat of increased supply and tapering demand take hold. There is growing concern that Trump’s tariff initiative will dent global growth and hence put a lid on, or even reduce, the demand for oil. Couple this with chatter that Saudi Arabia has offered more crude cargoes to Asian customers, so oil continues its retreat from 3-1/2 year highs struck at the beginning of this month.  West Texas CFD is now trading at 68.257 and the Brent/WTI spread is holding steady at about 4 pips.

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Natural gas appears to still be in consolidation mode after the steep slump in February this year. Summer months in the northern hemisphere is likely to keep demand subdued and Gas should remain close to the current 2-month lows. Near-term support could be found near last year’s lows in February and December around the 2.54 level.

Germany’s dependence on Russian gas and oil has once more come in to the spotlight following Trump’s visit to the NATO summit last week. Concerns that the building of a new pipeline directly linking Russia and Germany will introduce another “threat” level to the NATO alliance, be it from a dependence perspective or from a national security perspective.

 

Precious metals

Gold is still struggling for traction even as the US dollar pauses for breath after its stellar rise. The precious metal is now down 5.3% vs the dollar from its June 13 peak and has fallen 9.25% from this year’s high on January 25. Gold may find minor support at the December 2017 low of 1,236.683 and will likely be capped at the recent high of 1,266.113.

Source: Oanda fxTrade

There was little reaction to news that production at the Tongon gold mine in the Ivory Coast, which produced 288,680 ounces of gold last year, had come to a halt amid a strike by miners as government-led negotiations broke down.

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Latest data from Chicago’s Commitment of Traders report, with the snapshot taken as of July 10, shows that managed money accounts were net sellers of 1,273 gold contracts from a week prior and short positions exceeding long positions by 2,527 contracts.

Silver continues to echo gold’s heaviness and it looks set to retest the December low of 15.6316 in the near term. The low so far this year has been 15.7064. CFTC data as of July 10 shows money managers reduced net long positions by 3,434 contracts, but overall still hold net long positions.

The gold/silver (Mint) ratio has been steady over the past week with a mild upward bias targeting the 100-DMA at 79.1150.

Source: Oanda fxTrade

Platinum is just about managing to hold above the 800 mark following its first dip below the level since December 2008. A Reuters report from July 11 suggested that current prices are below the average production cost in South Africa, which was calculated to be $834 an ounce last year. Meanwhile, Johnson Matthey forecasts a global oversupply of 316,000 ounces, the biggest since 2011, for the year. The 55-DMA continues to cap to the upside while the July 3 low of 798.365 should hold in the near-term.

Palladium has drifted towards the lower end 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 922.52.

Base metals

Copper has plunged more than 18% from its peak in June as the escalating trade war between the US and China escalates, casting a huge shadow over the outlook for the global economy. The base metal closed below the 100-week moving average support last week for the first time since October 2016.Copper is attempting a rebound but any recovery could be limited by the slightly slower China Q2 GDP data released yesterday. Any impact from trade wars going forward on growth could limit demand for copper, since China is the top industrial metals consumer.

Agriculturals

Slowing demand and increasing production are both combining to keep sugar pressured. A report from India Sugar Mills Association yesterday suggests India’s sugar production could increase by 8.6% to 10.2% in the 2018-19 season. It estimates total acreage devoted to sugarcane is around 8% higher than the 2017-18 period. Money managers added about 11,000 contracts to short positions, according to the latest CFTC data as of July 10.

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 0.10946 after touching 0.10633 earlier today, the lowest since September 2015.

Corn is still attempting to recoup some of June’s heavy losses, and not making any headway. The CFTC data as of July 10 shows money managers are still holding net short positions, adding a net 10,064 contracts during the reporting week.

Soybeans touched a 9-1/2 year low of 8.074 early yesterday, yet appears poised for a second consecutive day of gains today. This would be the first time since end-May that the commodity has managed more than a one day uptick.  Monday’s low of 8.074 should provide near-term support while the July 6 high of 8.761 will be the next resistance point.

Wheat continues to hold above the 200-DMA at 4.4944 and is currently consolidating a rebound off a near-three month low seen last week. In a report released at the end of last week, the US Department of Agriculture offered a bullish outlook for wheat production, increasing harvested acres while upping yields per acre as winter wheat yields in the plains have been better than expected. They are also expecting a whopper spring wheat crop.

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 ?