Commodity Wrap - Oil, Gold, Natural Gas (20.12.2022)

Oil

• Citigroup expects oil demand to grew by just 1.3 million barrels per day in 2023 with supply growing at a much higher pace

• According to Citi, the largest economies in the world - US, China and EU - will not increase their demand by much next year

• Simultaneously, CEO of Saudi Aramco highlights limited global spare production capacity

• Iran sets light crude export prices for Asia delivery at +$3.15 for January, a drop from December when prices was set at $5.35 above benchmark

• Difference between Brent and WTI dropped to $4.5 per barrel and is the lowest since June

• Demand in China dropped in 2022 for the first time in this century but a rebound is expected next year. Meanwhile, uncertainty relating Covid in China is keeping oil prices in check

• On the other hand, demand in China grew significantly in 2020-2021 - from 11.3 million bpd to 15.4 million bpd

• US released significant amount of reserves last week due to the Keystone pipeline leak. However, period of reserve releasing is expected to end soon

Last week's data show significant release of US oil reserves. However, it was driven by a one-off situation - Keystone pipeline leak. Source: Bloomberg

Oil prices continues to trade under pressure. WTI needs to break above the price zone marked with 50- and 100-day moving averages for a trend reversal to occur. It should be noted that oil trades in significant divergence to EURUSD. Source: xStation5

Gold

• Hawkish turn from major central banks limited gains on the gold market

• A drop in positive correlation between gold and equity markets can be observed, suggesting that gold may be once again be seen as safe-haven by investors

• ETFs sold significant amounts of precious metals holdings this year with ETF gold holdings seeing the smallest drop

• Significant drop in gold and palladium exports in Switzerland in November. Drop in exports is also seen in China and Turkey while exports to India increase slightly

• Speculative buyers are becoming more active with number of open long positions increasing. This may suggest that gold market will see a period of recovery in-line with seasonal patterns

In spite of very hawkish central banks, gold prices holds at elevated levels and speculative buyers start to emerge. Source: Bloomberg

ETFs have been selling out precious metals this year. Source: Bloomberg

Gold has been quite resilient in the wake of recent pick-up in yields and attempts to hold above $1,800 per ounce. Source: xStation5

Natural Gas

• Gas consumption in the European Union during the August-November period fell by 20.1% compared to the 2017-2021 average

• Gas consumption declined the most in Finland, Lithuania and Latvia, but increased slightly in Malta and Slovakia

• EU set a price cap for Russian gas at EUR 180/MWH and some suppliers say it could limit gas transfers to Europe next season if market prices rise significantly above this level

• On the other hand, demand for LNG from Japan and South Korea may not pick up next year due to increased use of nuclear energy

• In the case of gas from North America, weather forecasts cause significant price declines

• Weather is expected to improve within next two weeks, which may reduce gas consumption, while production is expected to remain high

Gas consumption has dropped significantly recently, suggesting that Europe has done well to diversify its energy sources during the winter. Source: Bloomberg

Warehouses in Europe are approximately 84% full, with a 5-year average of 74%. Source: Bloomberg

Gas prices in the US are falling significantly due to warmer weather forecasts. Temperatures across the United States are expected to remain above average for the next 8-14 days. Source: Bloomberg

NATGAS price has already fallen by about 20% from the recent local highs of USD 7/MMBTU, while taking into account this year's highs, declines reached 40%. However, it cannot be ruled out that before the end of the year, US gas may fall to the lowest levels since March. Source: xStation5