Commodity wrap - Oil, Gold, Emiss, Natgas (14.12.2021)

Oil:

• Oil is trying to recover recent losses, but price remains consolidating near key resistance levels (bottom end of upward channel)
• IEA and OPEC reports indicate that Omicron may have a negative impact on demand, but it will be small and short-lived
• According to the IEA, the United States, Canada and Brazil will increase oil production to record levels
• IEA and OPEC indicate that oil demand will return to pre-pandemic levels in the second half of next year
• IEA expects an oversupply of 1.7m bpd in Q1 2022 and 2.0m bpd in Q2 2022
• OPEC still expects oversupply next year, mainly due to strong production growth in North America and an increase in supply from OPEC +
• Nevertheless, the outlook for demand for next year has been raised. As the coronavirus continues to recede and the aviation sector rebounds faster, global demand may be underestimated
• Saudi Arabia's oil minister points out that the OPEC + meeting is still pending. The talks are still going on, in fact, important decisions can be made every day.
• The oil market is heavily underinvested, a possible drop in supply by as much as 30 million bpd in the next 10 years in the absence of additional investments (according to Saudi Arabia)

OPEC expects a significant increase in the supply of crude oil from North America, OPEC and Russia. Demand will rebound, but not as dynamically as supply. Source: Bloomberg, OPEC

Crude oil price remains below the lower limit of the ascending channel and below the downward trend line. Source: xStation5

Gold:

• Gold remains under pressure ahead of the Fed's decision on tapering
• Tapering is expected to double to $ 30 billion per month
• The key issue will be the reaction of bond yields amid accelerated tapering. Should yields rise further, gold could move back towards $ 1,700 level.
• However, if the Fed does not communicate anything new  besides tapering and an increased inflation forecast, then profit-taking may occur and price could accelerate towards $ 1800-1815 area. However, gold may remain under pressure until the first interest rate hike
• Since the beginning of the year, ETFs have shed 8.2% of their gold holdings. At the moment, only silver (+ 1.7%) and palladium (+ 10%) have risen. However silver and palladium are significantly smaller markets compared to gold
• Next year may bring us high structural inflation, even in the case of interest rate increases, which may work in favor of gold (it may be similar to 2015, when gold rebounded after 1 hike)
• Real interest rates around the world are still strongly negative, yet 2021 is not very good year for gold
• Precious metal  is also under pressure due to an enormous oversupply. In the third quarter, production reached 960 tons, which was the highest level in history on a quarterly basis
• However, the increase in supply next year may be limited due to significant cost increases, which may limit production from some projects

Gold remains tightly consolidated around the $ 1,790 level, which coincides with 50 SMA. Should dollar profit-taking occur, gold may try to enter the 1800-1815 zone. Otherwise, the price may move lower and test the 23.6% Fibonacci retracement and the $ 1763 level. Source: xStation5

CO2 emission permits:

• Emission permits price have risen sharply to EUR 90 per contract, du to the increased use of fossil fuels in Europe for electricity production and heating
• Seasonality indicates that the local high should be reached next week and then we should see a consolidation
• Key support levels is located around EUR 72 and coincides with 50% Fibonacci retracement of the last upward wave
• Germany does not want the price to fall below EUR 60 in order to keep the emissions reductions on track
• This year, refineries in Europe had to buy about 24% of the emission allowances, in addition to those granted for free. Next year, due to the lower number of emissions, refineries may be forced to buy up to 30% of the necessary emissions
• Gas prices in Europe remain high, resulting in increased use of coal for energy and heating purposes. This poses a risk, that price may increase towards EUR 100 per contract
• SEB expects a price of around EUR 100, while Berenberg's forecast is EUR 110 by the end of the year
• A milder winter, however, may lead to a weakening of the bullish momentum​​​​​​​

EMISS - price is trading around $ 80 level and remains below the 23.6% Fibonacci retracement. Seasonality suggests that a local high may occur in the near future. Source: xStation5

Natural gas:

• Widowmaker - spread between March and April contracts, which shows us whether the market has enough supply for the winter
• March marks the end of the highly exploited gas season, April is the beginning of the restocking season
• The low spread suggests that the gas supply will be sufficient
• Currently, the spread between these contracts is the lowest in many years, which suggests that the market may remain under pressure at the moment
• The seasonal low is expected at the end of January. Last year, the outbreak of winter took place in January and February. It is important to observe spread reactions, as it may suggest changing market conditions

​​​​​​​The March-April spread is the lowest in many years and suggests that there should be enough gas for winter in the US. Source: Bloomberg

Gas usage in December this year could be significantly lower than last year, which could put some pressure on prices further in the short term. Source: Bloomberg​​​​​​​

NATGAS prices are trading below the lower Bollinger band, which may suggest that the market is oversold. On the other hand, the price is still below the 61.8 Fibonacci retracement of the last upward wave. Seasonality points that decline will last until the end of January. The key support is located around $ 3.3 MMBTU. Source: xStation5