Commodity Wrap - Oil, Copper, Wheat, Gold (09.03.2021)

Oil:

• Brent broke above $70 per barrel
• Price rallied over $50 since its local low - scale similar to the first phase of 2008 gains. Back in 2008, the first major correction pushed price around $20 per barrel lower, what would imply an around $50 target
• Weekly RSI indicator shows overbought levels
• OECD projects that global GDP growth will reach 5.6%, up from 4.2% in December forecast
• India is looking for alternative crude suppliers after OPEC, and especially Saudi Arabia, limited exports. This means that OPEC's market share will shrink once production fully returns
• India prefers oil at $50-60 per barrel. Two major refineries were asked by the government to look for alternative long-term suppliers
• EIA expects demand to reach around 98.2 mbpd in mid-2021. If OPEC keeps production unchanged until then, it could mean that the deficit will deepen from current 2-3 mbpd to 3.5-5 mbpd in mid-2021. It would hint at price rally towards $90-100 area. However, such a high levels will be hard to maintain over the longer period
• USA may ease the situation by striking a deal with Iran, what would bring around 2 mbpd of production back

In case OPEC does not boost its production until mid-year as expected, a panic short-term rally on the oil market may occur. However, demand destruction will make it impossible to maintain high price levels for longer. High oil prices are threatening global economic recovery. Source: EIA

Copper:

• Copper price continues to trade near the lower limit of the Overbalance structure
• Near-term support is marked with the upper limit of a previously broken upward channel
• Ongoing correction on the copper market is relatively small compared to a pullback on EURUSD or sell-off on the gold market
• Copper inventories increase quickly, especially in China, what may hint at the commodity being overbought in the short-term

Wheat:

• The hope for higher wheat prices is associated with a further increase in demand in China and in India as the economies of both countries are starting to recover after the pandemic
• The wheat market, both globally and in the United States itself, remains in a strong oversupply
• There are abstract expectations for agricultural commodity prices that show corn at $ 18 a bushel, soybeans at $ 30 a bushel, and wheat at $ 42 a bushel by 2023. Forecasts are based on a rapid rise in oil prices (from -40 dollars a barrel to current levels), or the phenomenon of potential hyperinflation.
• Rising production costs may turn out to be key in assessing the scale of potential increases

The latest WASDE report shows that there is still a strong oversupply in the global wheat market. Source: USDA

Cost data from 2009 shows that wheat production costs can be very high. Prices are currently at a similar level. Prospects point to a further increase in costs, therefore it may be a key factor in determining possible further price increases. Source: USDA

The price of wheat is consolidating. We still observe a clear similarity to the 2006 period. On the other hand, the years 2009-2010 show that prices in the region of 650 cents a bushel could quickly drop to around 420 cents a bushel. Much will depend on costs and further demand factors. Source: xStation5

Gold:

• Gold price returns above $ 1,700 an ounce
• Key support remains is located around $ 1600-1620 an ounce and is marked with 50.0 retracement of the recent price rally and an upward trendline
• Area around  $ 1,700 a barrel provides a key support and is based on the correction range from 2011 
• It is worth noting that back in 2011 when gold reached its historic highs, yields were significantly higher compared to today
• The dollar may be the key factor in the long term. One can see that at the beginning of the decade the dollar was much weaker which provided support for gold