Commodity Wrap - Oil, Gold, Natural Gas, Soybean (07.02.2023)

Oil

• Oil and oil refined product prices remain stable in spite of new Russian sanctions going live

• Apart from that, G7 and EU also set a price limits for other countries at $100 per barrel of diesel and $45 per barrel of heavy products, like ship fuel and heating oil

• Europe has been building up diesel stockpiles for months and secure additional shipments from Middle East, what may help prevent price shocks in near future

• It is expected that India will refine more and more Russian oil and will send more oil products to Europe

• Moreover, Russia is beginning to struggle to store its oil and oil refined products due still high production and lack of markets to sell it

• Demand in China is recovering according to Goldman Sachs. It stood at 14.5 million barrels per day in November and rose to 15.5 million in January. However, it should be noted that we are still off highs from mid-2021 when Chinese demand stood at 16.5 million barrels per day

Oil WTI is recovering but has run into an important resistance zone in the $78 per barrel area, where 25- and 50-session moving averages as well as an upward trendline can be found. It looks likely that oil will continue to trade sideways in the $72.50-81.50 in coming weeks. Source: xStation5

Gold

• Gold took a hit following release of stellar NFP report. Jobs data showed two times higher increase in employment than average for recent months

• Gold fundamentals remain strong however - demand for gold in 2022 was the strongest in decades. Central bank demand at 1136 tonnes was the highest in 55 years

• In spite of a significant increase in demand, supply was slightly higher, mostly thanks to a 4-year peak in mine production

• Lack of interest from ETFs remains a concern, as those funds are key in driving short-term moves

• Speculators are increasing bullish bets on gold. Number of shorts also increased.  ETFs are slightly selling out gold holdings at the beginning of the year

Total gold demand in 2022 was the highest since 2011, while central bank demand was the highest in 55 years. ETFs continued to sell out gold holdings last year. Source: WGC

Speculators are buying gold while ETFs are still selling, however at a slower pace. Source: Bloomberg

Natural Gas

• US natural gas prices stabilize in $2.40-2.50 per MMBTu

• Downward trend is starting to slow down. However, a drop of further dozen or so cents cannot be ruled out before market bottoms out

• US weather conditions remain very good - central and eastern states are experiencing higher-than-average temperatures. Temperatures are expected to get cooler in the second half of February

• Freeport LNG terminal is still expected to resume exports in the second half of the month

• Futures curve for US natural gas shows signficiant changes - a strong contango surfaced with price differential of around $1.5 over 12-months. This means a very weak near-term demand and willingness to store gas

• Production outlook remains solid what suggest that prices may remain at depressed levels and start to trade sideways

US weather remains very good. It is not expected to get colder until the second half of February. Source: Bloomberg

A strong contango surfaced on US natural gas market compared to a month ago situation, what suggest a weak near-term demand. Source: Bloomberg

Prices are starting to lose bearish momentum but it may still take a dozen or so cents until bottom is found. Source: xStation5

Soybean

• Some questions arose as to whether the Chinese economy will accelerate following post-Covid reopening. Soybean imports from the United States picked-up significantly recently

• Seasonal patterns suggest that upward move should be continued until end-February

• Key resistance zone can be found in the 1600 cents per bushel area

• Moreover, war in Ukraine has a limited impact on shaping of soybean prices but is very important for corn prices

• Brazilian real remains strong and stays in strong correlation with soybean market

• Brazilian president Lula da SIlva suggests that there is no need to cut down rainforests to increase soybean or corn production. This is complete opposite to Bolsonaro's policies

• On the other hand, there is strong divergence between soybean and soy oil prices what may suggest lack of demand

US soybean exports to China are accelerating, giving hopes for continuation of gains on US soybean market. Source: Bloomberg

Price is testing resistance marked with 50% retracement of the latest downward wave. Seasonal patterns point to gains continuing until end-February. Future trends will also depend a lot on the performance of BRL. Source: xStation5

Significant divergence between SOYBEAN and SOYOIL prices. Source: xStation5