Commodity wrap- Oil, gold, gas, corn (25.01.2022)

Oil:

• Crude oil has receded slightly from its recent local multi-year highs, but the decline is smaller compared to that in other markets, e.g. the equity market
• Recently, many banks such as Goldman Sachs and Bank of America have indicated that they see crude oil prices around $ 100 in the third quarter of this year
• Russia accounts for around 40-50% of oil imports in Europe, therefore a potential conflict with Ukraine may lead to huge changes in the oil market
• Assuming that the conflict is avoidable, Russia may still be able to increase oil production by 60,000 bpd per month from the assumed 100,000 bpd in line with the OPEC + agreement
• OPEC's spare capacity is expected to drop to around 2 million bpd by mid-year, just before the start of the “driving season”. This will be the lowest value of this indicator since 2018 and indicates that the increase in supply may not keep pace with the strong recovery in demand
• Due to the unavailability of additional production capacity, JP Morgan expects $ 125 a barrel this year and $ 150 a barrel next year

Crude oil has receded somewhat from the major supply zone. However should break higher occur, the next target  for bulls is located at $ 100, which is marked with the local lows from 2012. Source: xStation5

Gold:

• Gold broke above $ 1,833 per ounce zone, which acted as major resistance in the past
• Gold should theoretically fell before the first hike, and then record strong gains within 120-150 sessions after the first hike
• Currently, however, we are dealing with strong declines in the equity markets. Moderate drops in stocks should support gold prices. Only general sharp sell-offs which create a need for liquidity among investors are negative for gold, 
• Gold tends to maintain gains after the first hike within 1 year. On the other hand, looking at the chart, we can see an analogy with the consolidation that took place in 2011-2013. This may mean that we will not reach new all time-highs, and if interest rates increase to 3-4% (which is the same as the natural rate in the US), gold may significantly depreciate, as it was in 2013.

Gold is gaining this month, but an analogy can be seen in what happened in 2011-2013, and in particular in 2012, when gold was testing $ 1,800 level. Source: xStation5

Gas:

• Despite the high risk related to the potential suspension of gas imports to Europe, US gas prices remain under pressure, even with the further expected increase in LNG exports
• The weather forecasts do not indicate that the weather is getting worse. It is worth remembering that last year's weather breakdown damaged the infrastructure
• Back then the price rebounded from the January low by around 30%, in nominal terms it was around  $0.7. If the situation were to repeat,  price could jump to $ 5 with the same percentage increase
• US gas stockpiles remain stable​​​​​​​

US gas inventories are at the 5-year average. Source: EIA

NATGAS - US gas prices remain under pressure, although it is worth noting that last year on Jan. 22 the price hit a local low, after which prices rose more than 30% due to low temperatures. Source: xStation5

Corn:

• U.S. corn prices hit 620 cents a bushel, their highest level since mid-2021
• Due to the strong demand for soybeans from China, American farmers are expected to shift from corn to soybeans.
• S&P Platts indicates that the change will affect 3 million acres in the 2022/2023 season.
• This is because soybeans need less fertilizer than corn, and current energy prices are pushing up fertilizer prices around the world, which could lead to a further increase in food inflation.​​​​​​​

The expectations point to a reduction in corn production acreage, which, amid increased demand, may lead to further upward pressure on prices. Source: S&P Platts

Corn price is testing the 50.0% Fibonacci retracement of the last downward move. Prices last year consolidated in February, but the upward movement resumed in March. Source: xStation5