Commodity wrap - Oil, EMISS, Soybean, Silver (07.07.20)

Oil:

• Crude Brent and WTI still remain below key resistance ($ 41 and $ 45 per barrel respectively)
• Saudi Arabia raises its oil export prices from August to Asia, US and Europe, although the hike is lower than expected. On average, the export price is $ 1.2 a barrel higher than the benchmark
• According to JBC Energy, US fuel demand in July will be lower by 17% y / y. This may be related to the reintroduction of restrictions in key states which are accountable for the highest fuel consumption (Arizona, California, Michigan)
• Net positioning on 4 oil contracts (Brent and WTI for NYMEX and ICE) is at the highest levels in 5 months. On the other hand, the positioning for WTI on NYMEX is still flat.
• The quantity of petroleum products delivered to the market is falling, mainly in terms of aviation fuel. Gasoline production slows down in the US.

Net positions on the four most important oil markets are rising to their highest level in five months. On the other hand, WTI positioning on NYMEX looks very flat. This may indicate a lack of strength from the buyers side. Source: Bloomberg

The amount of aviation fuel delivered to the market has clearly dropped. Source: Bloomberg

Oil price remains below the key resistance level. If the price closes on July 7  around $ 40 a barrel, this could be a strong supply signal. Source: xStation5

EMISS (CO2 emission permits):

• The prices of CO2 emission permits broke above EUR 29 per ton.
• The price has been increasing continuously for the last four weeks
• The price reached last year's highs from July. Back then  25% correction occured.
• Price seasonality indicates that a local high is reached before Christmas. Seasonality in terms of dynamics returned to the 5-year average after a weaker second quarter.
• The market is talking about increasing supply constraints in future years, although with weak fundamentals this year. The European Union may decide to increase emissions reduction by 2030 to 50-55% from current levels (the current target is 40%). At this point, these speculations help market bulls.
• The rebound in coal prices in Europe may indicate that demand from power plants and other companies using coal is still high, which also increases the demand for emission permits.
• According to Bloomberg, the market is currently detached from short-term fundamentals, given the large oversupply of permits this year.

The rebound in coal prices may indicate an increase in industrial activity in Europe. Source: Bloomberg

The price dynamics from the current year returned to the 5-year average. Source: Bloomberg

The price reached last year highs. Last year we witnessed a 25% correction. Source: xStation5

Soy:

• Grain prices in the United States are clearly rising because of weather concerns
• US weather agency reports on definitely warmer conditions and possible droughts
• The quality of corn and soybean crops remains high and relatively unchanged
• The market speculates about reviving demand in China, given the reviving pig population after last year's African Swine Fever attack
• Last year's quarterly USDA report showed a definitely higher level of soybean inventories compared to the current levels.
• Corn acreage decreased compared to March. A significant increase in soybean acreage compared to last year.
• In our view, recent rally is a delayed seasonal increase that will be reduced in the coming weeks. In this respect it is worth observing positioning on agricultural products, which in the case of significant overbought will give a signal to retreat.

Recent quarterly data for the US grain market. Source: Bloomberg

Price dynamics for soybeans remain below the 5-year average. Seasonality indicates a decline in the near future. Source: Bloomberg

Soybean retreat from 910 cents per bushel at 61.8 retraicment level. It can be seen that seasonality is pointing towards declines, while speculative positioning is relatively high, around the 2018 and 2019 highs. Source: xStation5

Silver:

• Further increase in demand from ETFs. Clear price correlation.
• Further increase in long and short positions. Net positioning has been flat for over a month.
• The price has been consolidating since the beginning of June.

Further increase in demand from ETFs. The price of silver is consolidating along with the consolidation of net speculative positioning. Source: Bloomberg