Commodity wrap - Oil, gold, aluminum, platinum (01.02.2022)

Oil:

• Goldman Sachs sees a positive outlook for the oil market, pointing to $ 100 per barrel in Q3
• On the other hand, bank also admits that OPEC + may have to increase production if prices remain permanently above $90 per barrel in order to stabilize the market
• Excessively high prices in the market could lead to potential destruction of demand amid a fragile economic recovery
• At the same time, however, it should be remembered that OPEC + have increased difficulties to even produce at agreed upon levels, therefore even in the event of a policy change by the cartel, it can lead only to a short-term market reaction
• It is worth noting that the prospects for further output increases in the US are also limited. The number of drilling rigs is not growing significantly, which is related to the negative attitude of the authorities towards shale. In addition, the earlier wells are still heavily exploited

The number of drilling rigs is increasing in the US, but at a relatively slow pace at such high prices! In addition, the number of new towers is not able to increase the supply of unfinished wells (DUCs), which means that the prospects for production growth are rather limited and investment in the US oil market is small. Source: Bloomberg

Gold:

• Gold rebounded slightly thanks to the weakness of the dollar and lower bond yields
• A return above $ 1,790 and $ 1,800 indicates no buyer capitulation. However, the price is limited by the downward trendline  and the supply zone around $1850-1860
• It is worth noting that we have a similar consolidation as in 2011-2012. If the lows were broken at $1680, the price could drop to the 61.8 retracement of the last upward wave
• It is worth remembering, however, that statistically after the first hike in the cycle, gold usually rebounded in the perspective of at least 6 months (the average return from the last 7 cycles over a 6-month period is approx. 10%).
• ETFs slightly increased gold purchases, there was also a slight increase in contract buyers

Price has rebounded in recent days, but upside prospects are mixed at the moment. On the other hand, if the next NFP report disappoints the market in terms of wages and employment changes, gold could rebound towards the $1850-1860 zone. Source: xStation5

Aluminum:

• Strong backwardation in the industrial metal market may mean that prices may rise further, particularly when the prospects for a rebound in supply are rather modest
• Very low aluminum inventories tracked by LME
• Persistently high energy prices, especially gas, prevent European producers from increasing production
• Environmental regulations in China also adversely affect the supply of aluminum
• Aluminum is an important element of the energy transformation (electric cars, wind farms)
• Tensions between Russia and Ukraine may also potentially hinder access to aluminum​​​​​​​

Aluminum inventories continue to decline and are approaching an all-time low. Source: Bloomberg

Backwardation has picked up recently, suggesting increased demand in the short term. The 3-month spread is around $ 30. Source: Bloomberg

Platinum:

• Platinum resumed upward move after a few weak sessions.
• Prices return above $ 1,000 an ounce and test important resistance levels in the form of a downward trendline and a 38.2% retracement around $ 1,050 an ounce
• Short positions have been reduced sharply since mid-December, however there was no activity from buyers' side.
• ETFs are net buyers this year, but looking at the past few months, the trend remains downward
• Platinum is used in diesel engines and also in gasoline engines due to the very expensive palladium.
• Even if the demand for platinum from the automotive sector returns to pre-pandemic levels, in 2022 we should observe a large oversupply on the market, which is associated with strong production from South Africa
• The hope for platinum is production stagnation in South Africa due to high energy prices or sanctions imposed on Russia in connection with the conflict with Ukraine​​​​​​​

Platinum is testing an important level of resistance. On the other hand, the volatility in the gold market does not suggest a continuation of the rebound at the moment. Source: xStation5

A large reduction in short positions is good news for buyers. On the other hand, speculators are relecturant to open long positions. Source: Bloomberg

The previous year brought a gigantic oversupply related to the reduction in demand from the car sector and a clear recovery in South African production. Even with a further increase in demand from the automotive sector, the oversupply in 2022 will remain really large. Source: SFA Oxford, Heraeus