Commodity Wrap - Oil, Silver, Natural Gas, Sugar

In this week’s commodity wrap we present you 4 markets that look interesting or/and have posted some major price moves: Oil, Silver, Natural Gas, Sugar.

Oil:

• OPEC cuts demand outlook for 2018 and 2019. The points to lower demand from Middle East countries and China

• Demand seen growing by 1,5 mbd in 2018, and 1,29 mbd in 2019

• Non-OPEC countries’ supply seen growing by 2,31 md in 2018, and 2,23 mbd in 2019.

• OPEC indicates a need for a 1 mb production cut. Calculations indicate the need for a 1,5 mb production cut in order to balance the market next year

• Monthly US production data came in above weekly estimates. The difference points to potential further downward pressures

• Technical situation in 2016-2018 period looks similar to one from 2009-2012

The demand outlook for the next year was revised slightly lower. OPEC should reduce oil output if it wants to avoid another huge build in oil inventories. Source: OPEC

US oil production data came in higher than weekly estimates and EIA’s expectations. Source: Bloomberg

Technical view on Brent is very similar to the view from 2009-2012 period. Given the similarity in performance one may expect a break below the 38.2% Fibo level and a rebound later on in response to announced OPEC production cuts. Source: xStation5

Silver:

• Silver price drops below 14 USD per ounce in response to the strong US dollar

• Platinum, gold and copper prices are significantly higher in relation to silver price

• Further uncertainty around China may lead to decline of copper prices, and consequently a drop in silver price

• Declines could be limited by a strong demand area between 13.60 and 14.00

• No signals in CFTC data

Silver price tests the latest local low painting a potential double-bottom formation. Nevertheless, a strong demand zone marked by local lows from end-2015 can be found lower. Source: xStation5

Natural Gas:

• Natural gas prices skyrocketed in response to expectations of cold winter period

• Commodity stockpiles behave in line with general trend

• Lower temperatures in the US recently, moderate outlook for the eastern coast region

• Solid technical resistance level can be found on the chart

Average stockpiles decline (left, inverted axis) and may bottom in mid-December. Decline bigger than in previous years could boost natural gas prices further. Source: Bloomberg, XTb Research

Change in the US stockpiles in line with seasonality. Inventories continue to build ahead of the winter period. Source: Bloomberg

Natural gas prices did not rose so rapidly in the past 10 years. Source: Bloomberg

Natural gas prices surged ahead of expected low temperatures. Temperature in the US is around 2-4 degrees lower than long-term average. Changes in outlook will depend on the inventories data and weather forecasts. Source: xStation5

Sugar:

• Due to lack of rain sugarcane production in India may turn out to be lower than expected

• Crop yields 30% YoY lower

• Sugar factories do not rush to sign new export agreements

• Australia threatens to sue India at WTO due to excessive subsidizing

• Recent Brazilian dollar weakening exerted downward pressure on sugar prices

Sugar prices painted similar decline structure to one from the end of September. Price broke below the relevant support zone but trades close to the 38.2% Fibo level. BRL almost closed the downward price gap what may exert further pressure on the currency. Nevertheless, some positive factors can be seen from the fundamental point of view in the long run. Source: xStation5