Commodity wrap - Oil, Copper, Platinum, Wheat (27.03.2019)

Oil:

• India cuts oil imports from Venezuela, a further reduction on the cards

• US cuts its imports from Venezuela altogether

• Venzeuelan oil exports could be as low as 0.5 mbpd in March

• Iran keeps exporting its oil (to Iraq among others)

• A continued fall of US oil rigs indicates that the US shale industry’s activity may suffer

China has outpaced both the US and India in importing crude from Venezuela. Keep in mind that the US may offer its crude to China at lower prices. Source: oilprice.com

The state of play resembles the scenario we saw in mid-2017, thus possible further oil price rises could be in the offing. Source: Bloomberg

Copper:

• Copper prices have fallen sharply since gloomy PMIs from Germany have been released

• There was a notable increase of copper stocks in London, a move being tied to cancelation of warrants for copper deliveries

• Contango is present again in the short-end of the forward curve

• Morgan Stanley still believes in a huge rebound in copper prices due to an expected deficit

A rise in short-term supply pushed the copper forward curve (in the short-end) back to contango. Source: Bloomberg

Platinum:

• Platinum prices keep moving relatively low compared to other precious metals, palladium in particular

• There was a tremendous increase in investment demand for platinum suggesting that prices could be overbought

• Risk reversals and implied volatility point to space for price rises

• Citi sees a possible rise in demand in response to high palladium prices

• Costs to produce one car have increased $50 on average due to higher palladium prices

• Citi’s base case suggests platinum prices could be at around $900 by the year-end

ETFs have come back to buying platinum. Given low platinum prices one may expect a rise toward $1000. Source: Bloomberg

Speculative positioning gives no clues with regard to the future price’s direction. If shorts are further reduced, it could act in favour of higher prices. Source: Bloomberg

Wheat:

• Brazil may decrease tariffs on US wheat imports to 0% (applied to 750 tons) if a bilateral agreement is made

• Expectations point to lower quality of crops, however, the first data from Kansas suggests better quality

• Low net positioning but shorts have yet to touch their extreme levels seen over the past three years

• Seasonal analysis suggests a possible huge rise in wheat prices between June and July

A share of wheat with good or excellent quality should decline to 55% albeit there should not be a large reaction in prices. A fall below this threshold could lead to higher prices though. Source: Bloomberg

A buying opportunity could be noticed in wheat based on net positioning. Source: Bloomberg