Commodity Wrap - Sugar, Natural Gas, Silver, Oil

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

Sugar

• Australia claims that size of Indian subsidies breaches WTO rules (additional $1 billion of subsidies for farmer)

• Prices fell 30% below the Australian cost of production

• Sugar production expected to reach 35 million tonnes in this season, 9 tonnes oversupply (in the previous year India was net importer of sugar)

• 22 million tonnes of sugar produced in the previous year

• Indian sugar exports seen at 2 million tonnes what is quite high given significant production in the EU

• Bounce higher in the Brazilian real (ahead of the first round of presidential elections) boosts prices of coffee and sugar

According to the seasonality we should experience at least temporary bounce in the sugar prices. Source: Bloomberg

Sugar prices bounce higher along with the similar move of the Brazilian real. Price broke out from the widening falling wedge formation what may be a sign of trend reversal. Strong resistance level at 13.15 (78.6% Fibo level). Source: xStation5

Natural Gas

• Natural gas broke above the important downward trendline

• Higher demand in Asian and European countries due to unexpected colder weather

• Chinese demand expected to increase 37% YoY in 2018

• Natural gas inventories declined clearly in the past couple of months - inventories in October expected to be at lowest levels since 2005

• Citi points that there is a possibility that natural gas prices will rise 400% during upcoming winter season, Morgan Stanley expects a drop to $2.5 in medium term

Natural gas prices in the United States move sharply higher on the back of increased demand for LNG in Europe and Asia (LNG prices surged to $12-14 per mmBTU). From the technical point of view, NATGAS is testing the resistance area around $3.2 (50% Fibo level). Source: xStation5

Strong Chinese demand boosts LNG prices around the World. Source: Financial Times

Silver

• Capital Economics (CE) claims that current gold/silver price ratio cannot be maintained

• Gold/silver price ratio in the vicinity of 85, long-term average gold/silver price ratio at 50

• CE points at gold price rising to $1350 and silver price to $17.50 until the end of next year, what would cause ratio to fall to around 77

• CE expects smaller increase in the mine output in 2019

Silver price advanced sharply at the end of the previous week but the rally was halted in the vicinity of $14.90, in line with the range of the major bounce higher that took place in May. A break above the 14.90 handle could pave the way to the vicinity of 15.20 where a strong price zone can be found. Nevertheless, silver trades in the widening rising wedge formation what may herald a period of declines. Source: xStation5

OIL

• Oil price rises on the back of concerns that oil producers will not be able to fill gap resulting from the drop in the Iranian exports - at the same time, Russia increases production by 150 thousand barrels per day setting a new record

• Iranian exports are at lowest levels since February 2016 - the decline reached even 250 thousand barrels per day on a monthly basis, according to some statistics (decrease of 1 mn barrel in comparison to April’s high)

• President Trump encourages Saudi Arabia to rise oil production. Additionally, US Congress considers introducing the NOPEC act that would allow to sue OPEC for price manipulations

• Citi points at further problems with oil transfers in the US what could increase Cushing oil inventories and widen spread against Brent to $15.

• Barclays claims that market is overconcerned with current situation what may in turn lead to excessive rise in supply  - Barclays forecasts that Brent will trade at $77 per barrel in 2018 Q4.

New oil production record in Russia amid limited upside from OPEC producers. Source: Bloomberg

Oil market has been discounting a drop in the Iranian exports for a long time. It should be noted that in 2015 and 2016 we experienced a significant drop in prices due to concerns that lifting sanctions will result in oversupply. Source: Bloomberg

Brent briefly broke above the $85 handle. Nevertheless, in November investors may start taking profits from their long positions. Taking a look at the net speculative position on oil one can see a significant rise in long positions. From the technical point of view, it should be highlight that the RSI indicator approaches 70 pts handle. Source: xStation5