Commodity Wrap - Oil, Gold, Corn, Copper

Oil

• Saudi Arabia informed that it has fully restored output capacity lost during drone attacks

• Oil prices dropped below pre-attack levels

• Market is focused on the demand-side factors. IEA lowered its demand growth forecast numerous times this year

• Standard Chartered hinted that demand growth slowed to a 10-year low last month. September was a third month in a row when annual demand growth slowed. The previous such case took place in 2009. Over the past 10 years demand for oil grew in 113 months while it declined in just 7. It should be noted that 5 of those declines took place over the past 8 months.

• Global oil supply declined due to Saudi Arabia struggles (OPEC production dropped below 29 mbd for the first time since 2014)

• Shale production should continue to rise in the nearby future but low prices and declining number of active rigs hints that total US production could have already reached its peak (green line on the chart below, white line represents shale production

Confirmed production (green line) consolidates around 12 mbd. On the other hand, shale production (white line) keeps reaching new records. Source: Bloomberg

Oil price declined and reached the zone at $51. This zone was tested in February, June and August. A triple bottom is present on the chart, what is a strong technical pattern. Source: xStation5

Gold

• ETFs keep significant reserves of all precious metals with palladium being the only exception

• CFTC data hints at significant reduction in the number of long positions. Number of short positions remains at extremely low levels

• From a technical point of view, gold still has a chance to fulfill the range of the head and shoulders pattern as the latest break above the neckline was a false one

• $1517-1520 area remains to be the key resistance to watch

ETF holdings of precious metals plateaued out. Source: 

Significant reduction in the number of long positions but the number of shorts remains near extremely low levels from 2016-2018 period. Source: Bloomberg

Length of the previous consolidation suggests that sideways trend on gold may last until the second half of November. Source: xStation5

Corn

• Corn bounces higher thanks to start of the US harvest season

• Poor beginning to the season

• WASDE report is expected to show significant decline in ending stocks (previous report was a major disappointment)

• Farmers hints at significant discrepancies between reality and USDA estimates

• Price reached 5-year seasonal highs for the period already

Harvest progress is at its weakest in five years. However, the trend is preserved. Source: Bloomberg

Market consensus hints at noticeable decline in all corn metrics in the next WASDE report. Source: Bloomberg

Price performance in the current period mirrored the best one from the previous five years. In theory, the first upward impulse should finish no later than mid-October. According to the seasonal patterns, the next upward impulse should occur in December. Source: Bloomberg

Copper

• Global economic slowdown limits potential for any rebound in copper prices

• Other industrial metals are also moving lower, what hints at demand struggles around the world

• From a technical point of view, we may be experiencing the beginning of a second downward wave that could take the price below the 5000 USD mark

Copper price should perform in line with the condition of the global economy. Source: xStation5