Commodity Wrap - Oil, Natural Gas, Gold, Silver (27.06.2023)

Oil

• Oil remains under pressure just a few days before the additional production cut of 1 million barrels per day by Saudi Arabia takes effect

• It's worth noting that this cut coincides with a seasonal increase in demand, not only in Europe and the USA due to the "driving season" but also in Arab countries, where a significant portion of power plants relies on oil

• It is expected that in Q3 we will have a balanced market or possibly a small deficit

• Large banks such as JP Morgan and Goldman Sachs have recently lowered their forecasts for Brent crude at the end of the year to $80 and $85 per barrel, respectively

• At the same time, fuel prices, such as gasoline and especially diesel, have seen the largest declines since 2010. This is, of course, related to the high base from last year, but it could also indicate a weaker-than-expected demand recovery

• Brent crude is in a slight 3-month contango, and the forward curve has significantly flattened in the perspective of the next few years, which also suggests declining short-term demand

• The one-day coup in Russia did not lead to instability in oil production and exports, which also did not cause a price increase in the early part of the last week of June

Futures curve suggests a decline in short-term demand. Source: Bloomberg

Declines in US diesel prices are the largest since 2010. To some extent it is driven by base effects but a weakening of demand cannot be ruled out as an additional factor. Source: St Louis Fed, FRED

Brent (OIL) struggles with breaking back above $75 per barrel. Moreover, price trades below 50-session average since April 24, 2023. Source: xStation5

Natural Gas

• It is expected that in July, natural gas demand and exports in the US could exceed 100 bcf/d. With limited gas imports, this could result in minimal gas inventory growth, contributing to a seasonal rebound in gas prices

• Gas exports in June in the US averaged 11.4 bcf/d, which was a decrease of over 12% compared to the same period the previous month. The increase in exports in July could limit the supply available for inventory rebuilding

• Gas inventories in the US remain significantly above the 5-year average and last year's levels. However, comparative inventories are consolidating, and a significant decline in the coming weeks could provide a stronger bullish signal

• Weather forecasts still indicate higher-than-average temperatures in early July, although not as extreme as in the second half of June

• From a technical standpoint, gas prices remain high, but the recent spike could be seen as an exhaustion gap. Seasonally, we should expect a local bottom by the end of this week and a rally through mid-August

Beginning of July in the United States is expected to be warmer than usually but at the same time not as extremely warm as in the second half of June. Nevertheless, daily natural gas demand is expected to exceed 100 billion cubic feet. Source: NOAA

NATGAS continues to trade near the upper limit of the upward channel. Doji candlestick hints at indecisiveness and a pullback after recent steep gains cannot be ruled out. However, seasonal patterns for the coming weeks suggest period of strong gains. Source: xStation5

Gold

• Gold has remained clearly oversold following the hawkish stance of central banks last week. Powell confirmed that two interest rate hikes can be expected this year

• However, gold holding at relatively high levels despite such a sentiment indicates that during monetary policy easing, precious metal can gain significantly without being hindered by high interest rates

• Central banks continue to accumulate large amounts of gold, and the physical market is enjoying strong demand. However, there haven't been significant changes on the ETF funds' side. Futures contracts also show stagnation among speculators.

Gold continues to trade near the lower limit of the Overbalance structure. However, the upward trendline has been already broken. A key support can be found near 38.2% retracement in the $1,900 per ounce area. Source: xStation5

Gold has painted a potential triple top pattern with neckline running in the $1,600-1,700 area. Should June end with a strop drop, one cannot rule out an attempt to push the price below $1,800 mark, where price dropped following two previous local highs. Source: xStation5

Silver

• Silver is attempting to recover its losses more strongly than gold, but it remains below the important resistance level of $23 per ounce.

• Copper can be an important price indicator for silver, often slightly leading movements in the precious metal. Firstly, silver is also widely used as an industrial metal, and secondly, both metals are mined simultaneously. Issues in copper mining can also provide upside potential for silver

• However, currently, we still observe the strongest correlation of silver with US bond yields and the US dollar

• From a technical standpoint, silver remains within an upward trending channel, very close to the lower boundary. If the upward momentum continues, the next target for silver should be around $23.8-24.0 per ounce, where the corrective range in the current downtrend aligns and the 50-session average is located

• Seasonally, we may expect consolidation or moderate declines until July 13th

Silver is highly correlated with gold but it was silver that has been performing better as of late. One cannot rule out a test of $23.00 or $23.80 if yields continue to drop. Seasonal patterns suggest a period of range trading until July 13, 2023. Source: xStation5