Commodity Wrap - Oil, Silver, Natural Gas, Copper (20.09.2022)

Oil

• The United States will extend the deadline for SPR releases. Final 10 million barrels of oil will be released in November, instead of October. Total number of barrels released will remain unchanged at 180 million barrels

• So far, 175 million barrels were put up for sale, from which 155 million were sold. This means that only 25 million barrels remain to be sold until a new deadline of November 20, 2022 is reached

• Pace of SPR release was close to 1 million barrels per day in recent weeks, putting pressure on oil prices

• Saudi Arabia delivered more oil to China in August than Russia did (1.99m bpd vs 1.96m bpd). This signals that Russia may have problems with finding buyers for its crude

• An extremely rare situation occurred on the market - coal prices for deliveries to Newcastle port, expressed as a barrel of oil equivalent, jumped above crude oil price. This may exert upward pressure on oil prices due to coal-to-oil and gas-to-oil switch

Price of coal for deliveries to Newcastle port jumped above oil prices. Meanwhile, gas prices, expressed as a barrel of oil equivalent, dropped to around $100. Source: Bloomberg

US Strategic Petroleum Reserves dropped by 165 million barrels since the beginning of 2022 (155 million barrels since April). There are around 25 million barrels left to be sold to complete the planned 180 million barrel release. Fundamentals should support higher prices but one cannot forget about the looming risk of recession in China, Europe or the United States. Source: Bloomberg

Silver

• Significant divergence between silver and gold prices

• Positioning data points to small demand for silver from speculators. However, number of open long positions rebounded from extremely low levels last seen in May 2020

• ETFs has been purchasing physical silver recently but trend in net change of holdings remain downward

• Forecasts for current year's silver production point to over-1.1 billion ounces, what would be a new record. Such a high production is also expected to last into 2023, thanks to new investment projects in Mexico, Chile or Ecuador

• Future demand for silver will to a huge extent depend on the pace of energy transition. This pace have slowed recently due to deteriorating economic situation and it may limit demand for silver in the quarters to come

Speculative demand for silver remains weak, with net positioning sitting near extreme lows. Source: Bloomberg

A significant divergence between gold and silver can be spotted over the past few days. Moreover, we can see that seasonal patterns are unfavorable in the near-term. Source: xStation5

Natural Gas

• US natural gas prices rebounded significantly at the beginning of this week, in spite of a previous collapse

• Seasonal patterns for natural gas point to a potential period of range trading over the next 2-weeks and a potential price recovery at the turn of October and November

• Meanwhile, Europe natural gas prices drop as EU countries ahead of heating season

• German energy minister says that ongoing reduction in consumption, coupled with favorable weather conditions, would allow economy to survive upcoming winter without much of an issues

• Germany is also racing to diversify its natural gas imports. Agreements with Qatar and UAE are being negotiated and those would replace majority of Russian imports

US natural gas prices (NATGAS) bounced off the neckline of a head and shoulders pattern. Seasonal patterns point to a period of range trading over the next 2 weeks. Source: xStation5

Copper

• Copper continues to trade under pressure but compared to other industrial metals, it performs quite well

• Aluminum prices dropped below a local support, CNY is the weakest since mid-2022 and USD dollar continues to put pressure on copper prices

• Seasonal patterns point to a potential period of range trading ahead and price declines in November. Price recovery may arrive at the turn of the year

• Data from Chinese housing market are not too upbeat - a drop in finished projects can be observed, as well as drops in sales and prices

• On the other hand, data on inventories shows that amount of copper held at exchanges sits at the lowest level since the turn of the year, what was an extremely low level itself

Copper price remains quite stable in spite of other markets pointing to a possibility of a strong sell-off. Source: xStation5

Data from Chinese housing markets shows that real demand for copper may be really low and prone to fall further. Source: Bloomberg