Commodity Wrap - Oil, Corn, Natural Gas, Gold

Oil

• Drone attack on Saudi refineries caused the biggest oil shock in history

• Abqaiq is the biggest oil refining facility in the world, processing over 5 million barrels per day. Around 2 mbd of production was already restored. The remaining part should be restored over the following weeks

• Saudi Arabia, United States and Japan said they will use strategic reserves

• S&P Global Platts expects Brent price to increase to as high as $80/barrel

• Increase to $80/barrel could be a serious threat to import-oriented economies and may deepen the global economic slowdown

In theory, OPEC had a lot of spare capacity at the end of August. It is rumoured that 1 mbd of spare capacity is all that's left after attacks on Saudi oil plants. Source: Bloomberg

Import-oriented economies (for example Poland, Turkey and Portugal) may find themselves in trouble in case oil prices rise to $80/barrel. Source: Macrobond, Bloomberg, XTB Research

Corn

• The latest WASDE report hinted at corn ending stocks remaining above 2 billion bushels in 2019/20 season, what cause price to decline towards YTD lows

• Trade optimism caused US grain prices to rally

• Demand for corn may rebound along with the ethanol production

• China imported as much as million barrels of ethanol per day in the previous years. China plans to introduce ethanol additions to gasoline, what could be a chance for the US ethanol producers

• Producers may be encouraged to increase output as ethanol prices rebound amid declining stockpiles

• US corn crop quality remains poor, what does not bode well for the full-season production figures

Corn crop quality remains poor. Source: Bloomberg

Ethanol production and stockpiles declined in recent weeks. Source: Bloomberg

Natural Gas

• Natural gas prices continue upward move and break above the $2.60 handle

• Speculative positioning hints at natural gas being significantly oversold. Repeat of a situation from November 2018 cannot be ruled out

• Energy production in the US remains above last year’s levels. It is the aftermath of high temperatures that cause increased usage of air conditioning systems

US natural gas stockpiles change in-line with seasonal patterns. Inventories should begin to decline more significantly in a month and a half. Source: Bloomberg

Number of short position on natural gas was reduced significantly. Last year’s rally was preceded by a reduction of long positions as well. Source: Bloomberg

There are no severe forecasts for the US winter season so far. However, it still may change and given current speculative positioning, rally similar to the one from 2018 could repeat. Source: xStation5

Gold

• In spite of Middle East tensions, gold price remains in the vicinity of $1500 handle

• ETF holdings of gold and net speculative positioning on gold declined recently

• Strong USD and rising yields limit further gains on the gold market

• Risk reversals hint at increased interest in hedging against further gold rally

ETF holdings of gold and net speculative positioning declined slightly. Source: Bloomberg

Interest in options on gold increases. Source: Bloomberg

Gold trades below the key resistance - 61.8% Fibo level. A head and shoulders pattern with a neckline at $1480 handle may be building. Source: xStation5