Commodity wrap - Oil, Gold, Natgas, Corn (26.07.2022)

Oil:

• Crude oil is breaking out of the downside sequence. The nearest  key target for WTI bulls is located around USD 101 per barrel 

• Some analysts believe that a destruction of demand is taking place in the US. The gasoline stockpiles have risen sharply after large quantity of products was delivered to the market recently 

• Crack spread has dropped to its lowest levels since April, but is still double the average, which indicates that the demand for fuels has not collapsed yet

• The market continues to suffer from a crude oil shortage, as evidenced by a strong backwardation

• Positive net positioning in the crude oil market jumped to a 3-week high, which indicates a possible return of investors to the market

The crack spread has fallen recently, but remains well above the standard level, indicating that oil products are still in high demand. In addition, there is still a shortage in the crude oil market itself, which is illustrated by the huge difference in the nearest contracts (COCO spread on Brent crude oil). Source: Bloomberg

The number of long positions in the oil market is growing (4 contracts: Brent and WTI on ICE and NYMEX). Source: Bloomberg

Crude oil potentially breaks out of the downside sequence by marking a higher low. Major resistance for WTI is located around $101.00 per barrel. Source: xStation5

Gold:

• Gold remains above the key support zone around $ 1,680-1700

• Descending below this zone would resemble a similar situation from 2011-2013

• On the other hand, we are approaching the end of the interest rate hike cycle, which may lead to a continuation of the rebound

• The market expects that the Fed will cut rates in the first half of next year and. ECB is expected to raise rates only 100 basis points by the end of this year and then  the cycle would end

• The dovish hike by the Fed could push gold even  to $ 1,800 within the next 2-3 weeks

• On the other hand, speculators are selling gold heavily on contracts

Strong growth of sellers on gold contracts. Source: Bloomberg

The month is coming to an end and at the moment it looks like a key support zone has been successfully defended. If bulls manage to defend the 1680-1700 zone for the 4th time, there is a chance for broad consolidation to continue. However, if we break further down, there is a chance that the situation from 2013 will be repeated. For that, however, we need very hawkish central banks. Source: xStation5

Natgas:

• Gas consumption in the US increases due to high temperatures, which causes difficulties in rebuilding stocks

• As soon as temperatures drop, prices are exposed to an immediate 10-15% decline

• With the current fundamental factors, prices should stabilize in the range of $ 6.5-7.5 MMBTU ahead of the heating season

• Higher exports to Europe from the US could drain inventories further during the heating season, which could drive prices up to the $ 10-12 MMBTU range, even if winter is moderately mild this year

• In Europe, the " turbine drama" is taking place. The turbine can be picked up in Germany, but Gazoprom does not want to do it because of the bureaucracy

• At the same time, Gazprom is shutting down another turbine due to its "damage". Gas flow is expected to drop to 20% of the maximum level, which will not be enough to keep Europe safe for winter

• Greece and Poland do not want a 15% reduction in gas demand. Spain indicates that the EU is likely to set a lower target for reducing gas demand in the winter

Gazprom currently sends around 60 cubic meters of gas per day, with the maximum capacity being around 160 cubic meters. However, the company announces that it intends to reduce the transmission to just 20%. Source: Bloomberg

Corn:

• Russia attack Ukrainian port of Odessa a day after grain exports agreement was reached with UN, Turkey and Russia, what lead to jump in corn and wheat prices

• Apart from that, heat wave in the United States lead to deterioration in crop quality

• Prices recovered slightly in response to developments but remain under selling pressure

• Only 2019 saw worse corn crop quality at this point of the season in the United States 

• A large reduction in the number of long corn positions. Buyers, however, should return to the market in September

• September often experiences a seasonal price recovery although the largest price increases are usually spotted in the first phase of the season

Large reduction in the number of long positions on corn. However, it should be noted that speculative positioning tends to rebound in September. Source: Bloomberg

Seasonal patterns on corn point to a possibility of price rebound starting from September. Source: Bloomberg