Commodity Wrap - Oil, Silver, Copper, Sugar (04.05.2021)

Oil

• OPEC+ did not change its recommendation for oil production during the next 3 months

• Goldman Sachs expects Brent price to reach $80 per barrel during the current phase of the upward move

• Performance of the US dollar may be one of key factors for oil, as well as for other commodity prices

• Key resistance for OIL can be found at $70 handle and is marked with local highs from 2019. The next major resistance can be found at $77, where there long-term downward trendline and the upper limit of the upward channel are located

Oil reacted to USD strengthening with a delay. EURUSD keeps trading above 1.20 at press time. Should the main currency pair drop below, oil bulls may struggle to push Brent price towards $70. Source: xStation5

US stockpiles sit near the 5-year average for the current period. Level of US stockpiles should stabilize through mid-June. On the other hand, should stockpiles continue to fall, a positive signal for oil prices would be generated. Source: Bloomberg

Silver

• Australian mint Perth Mint hints at increasing demand for silver coins. Company said that demand for 1-ounce silver coins exceeds production capacity

• Perth Mint said that sales in April reached almost 1.8 million ounces, marking a 12.4% MoM increase. However, sales were 15% YoY lower

• Silver prices increased around 6% in April, what was the best month for precious metal so far this year

• A potential inverse head and shoulders pattern can be spotted on the chart with a neckline at around $26.80 per ounce. $27 area can act as a resistance. Potential target of a breakout from the aforementioned pattern points to an upward move towards highs from August 2020 and January 2021 ($29.65)

• Commerzbank expects inflows into precious metal ETFs to pick-up soon. Situation may lead to an increase in volatility on gold and silver markets

• The World Bank expects silver price to increase 22% in 2021. Precious metal is trading 2% year-to-date high so far. Nevertheless, it still outperform gold, which has dropped almost 6% YTD

Silver may be breaking above the neckline of an inverse head and shoulders pattern. Potential target points to $29.65 area. Source: xStation5

Year-to-date inflows into silver ETFs remain positive. So far, data does not hint at incoming rebound. Demand from ETFs was a key driver of last year's price moves. Source: Bloomberg

Copper

• Copper stockpiles on the largest global exchanges began to fall once again. Inventories decline primarily on London Metal Exchange

• World Bank points to a 30% price increase for industrial metals this year and expects a downward correction to occur in 2022

• Copper price is once again testing $10,000 area. Strong USD may act as a limiting factor for bulls

• Copper price corrected around $1,000 following USD strengthening back in March

Copper stockpiles may be entering a period of cyclical declines. In such a scenario, copper prices may remain supported and even move towards new record highs. However, it will be demand from China that will determine how stockpiles change. Source: Bloomberg

Sugar

• May is a good month for sugar prices based on seasonal patterns. Situation is a result of capacity constraints in Brazilian ports

• Sugar exports potential is being limited as ports are busy with increased Chinese demand for soybean and corn

• Moreover, high oil prices lead to a increased demand for ethanol, what limits availability of sugar

• The latest forecasts hint that sugar production from sugar cane in Brazil may be around 30% lower compared to last year

• Numerous countries plan to increase ethanol content in fuel mixed. India plans to increase ethanol content from 5-6% currently to as high as 20% by 2025

• Moreover, India also plans to start producing ethanol directly from raw sugar in an attempt of limiting mounting supplies

• Speculative positioning looks similar to 2016-2017

A rebound in the number of open long positions on sugar can be seen since the beginning of the current quarter. Simultaneously, one can spot that short positioning has been extremely low from the past 2 quarters, just as it was the case in 2016-2017. In case sugar prices fail to break above recent local peak, price performance may develop in line with the 2016-2017 situation. Source: Bloomberg

On the other hand, fundamentals look relatively good. Seasonal patterns hint at sugar price increases over the summer. Source: Bloomberg