Commodity wrap - Oil, CO2, Gas, Gold (08.02.2022)

Oil:

• Brent pulled back from $ 93 per barrel due to Iran's twist
• The US re-grants sanctions waivers for non-military uses of nuclear energy in Iran, e.g. hard water reactor conversions
• The United States wants to reach an agreement or at least progress in negotiations with Iran by mid-February, when the International Atomic Energy Agency's report is published, or early March, when the IAEA board of directors convenes
• However, Iran is still refusing to return to the uranium enrichment limits of the 2015 agreement
• Iran produces 2.5 million bpd, but is able to increase production to 4.0 million bpd
• Exports are marginal, Iran is able to increase exports very quickly to 2.0-2.5 million bpd
• China and Russia are willing to invest tens of billions of dollars in Iran's oil and gas sector
• If an agreement is reached, then a larger downward correction may occur, which would delay march towards psychological $100 per barrel.

Iran, despite very limited exports, produces 2.5 million bpd. Therefore if sanctions on oil exports were to be lifted, then Iran is able to quickly increase the amount of oil in the market. Source: Bloomberg

The participation of option investors in the oil market is growing. Implied volatility is increasing. Crude oil VIX is rising slightly, which points to a potential downward move in the 1-month perspective. Source: Bloomberg

CO2:

• Prices of emission permits in Europe and China at record levels
• Emission permits in China are approaching $10 per ton, in Europe they are approaching €100 per ton
• China intends to increase the number of sectors that will be part of the emission reduction system
• Goldman Sachs points out the world needs a "global carbon tax"
• An increasingly restrictive global policy likely means that the EU will not intervene when it comes to high permit prices​​​​​​​

China's CO2 emission permits prices have hit a new record. Source: S&P Global

Emission permits prices are rising sharply. Nevertheless, the ratio of gas to coal prices in Europe remains relatively low, which means that it is still more profitable to use low-carbon commodities. Source: Bloomberg

Natural gas:

• Weather forecasts again affect the gas market - the expectations of higher temperatures in the US  lead to price declines
• The recent drop of gas stockpiles was smaller compared to last year and to 5-year average
• Inventories levels drop below the 5-year average
• However, production in the US rebounds which may lead to greater supply pressure especially if the temperature keeps rising
• Warehouses in Europe are 36% full, at the same time the 5-year average currently stands around 50%. Inventories level similar to 2017​​​​​​​

Medium-term 50-day moving average crossed under the log-term 200-day average. This has formed a bearish 'death cross' which can at times precede a turn lower. Recently, such a situation took place in February 2019. Back then, prices rebounded slightly in the short term, but then were in a downtrend until summer 2019, where the 50 period average acted as a resistance. Currently, the price of gas is still above the 50 and the 200-period average. Source: xStation5

Speculators are not making any major gas purchases, though net positioning has increased slightly in recent weeks. Source: Bloomberg

Gold:

• The price of gold remains elevated, but at the same time is still consolidating in the form of triangle pattern
• On the monthly chart, gold remains below the key downward trend line and the 23.6% Fibonacci retracement of the last upward wave
• The key support zone is located around $1680 -1720.
• ETFs are still passive in terms of buying or selling gold, a similar behavior could be seen in 2012, 2014 or the turn of 2017 and 2018. Gold at that time accumulated at low levels, then price moved higher, but for a very short period of time.
• Investors in the futures market changed their behavior. Significant decrease in longs and increase in number of short positions. Net positions near important "support". Descent below may cause additional downward pressure​​​​​​​

Gold price remains in a triangle formation. The current situation is reminiscent of the consolidation from 2011-2012. On the other hand, interest rate increases are almost certain, which are statistically positive for gold in the first phase. Source: xStation5

ETFs remain passive. Buyers are reducing positions on contracts. Source: Bloomberg