Commodity Wrap - Oil, Gold, Natural Gas, Corn (13.07.2021)

Oil:

• Uncertainty relating OPEC+ continues. Stand-off between United Arab Emirates and Saudi Arabia has not been resolved yet

• OPEC+ does not plan to meet before the end of this month

• United Arab Emirates increased production anyway

• According to IEA, oil market deficit may increase if OPEC+ continues to disagree. However, such a scenario is only possible under the assumption of keeping the current output cut agreement in place. Some producers, like for example UAE, may start to pump more

• IAE points that Q3 will see the largest drawdown in oil stocks in at least a decade

Quantity of delivered oil-derivative products in the United States nears 5-year highs, signalling a strong demand. Gasoline deliveries are at the highest levels in the past 5 years. Source: Bloomberg

Oil inventories in the United States dropped significantly below 5-year averages for 2015-2019 and 2016-2020. DOE report on Wednesday is expected to show a drop of 4 million barrels. Should the report disappoint, oil may experience a price correction. Source: Bloomberg

Gold:

• Gold demand in India remains weak, what is related to the pandemic situation

• Premium required by dealers in India dropped from $3 per ounce to $1.5 per ounce

• ETFs have slightly reduced its gold holdings recently. ETFs have sold 6.1% of its holdings so far this year, compared to 2020 levels. ETFs on other precious metals increased holdings year-to-date

In spite of small reduction in ETF holdings, net speculative positioning from a relatively low levels. Source: Bloomberg

Key short-term levels to watch for gold are $1,790 and $1,820. USD may be a key factor driving gold prices but one should note recent divergence between gold and EURUSD. Source: xStation5

Natural gas:

• More investors expect a continuation of the rebound in gas prices in the United States

• However, some concerns emerged that the lower temperatures in August will reduce the demand for electricity from gas power plants

• At this point, further changes in gas stocks should be observed. If stocks are not replenished quickly, then there will be pressure to increase prices before the heating season

• Until October, the forward curve is flat and then until December it points to higher prices. Later, drastic drops

• We are seeing a strong rebound in short and long positions. Despite the negative positioning, interest in gas has a positive price effect. A similar situation took place in 2007/2008, when positioning fell sharply, but prices went up to $ 14 MMBTU

• Berkshire Hathaway will not buy the gas pipeline from Dominion Energy, which may spoil the mood in the industry a bit. On the other hand, Berkshire bought other assets related to the gas sector last year, which may show long-term certainty for the gas sector.

Gas inventories are not recovering in line with the seasonality. Source: Bloomberg

The interest among buyers and sellers is increasing, as in 2007/2008. Prices are rising strongly, but the rally may be stopped when demand is reduced in the short term. Source: Bloomberg

Corn:

• Corn price continues its decline after the massive bearish price gap on 6 July

• Speculators reduce the number of long positions, although net positioning remains positive since last August, which is the longest positive period for this market in several years

• A slight increase in the quality of maize crops to 65% from 64%

• Despite a positive biennial crop report, the July WASDE report shows an increase in closing stocks for maize

The price of corn remains below 550 cents a bushel and well below the downtrend. If the price fails to return above these two resistance levels, it may continue to negatively affect the moods among speculators. Source: xStation5

The latest WASDE report was negative for corn and soybeans. On the other hand, the report should be positive for wheat. Source: xStation5