Commodity wrap - oil, gold, platinum, corn (06.04.2021)

Oil:

• OPEC + has agreed a plan to increase production for the next 3 months
• Starting from May, production will be cut to approx. 6.5 mbd, then 6.2 mbd and 5.8 mbd in the following months, which means a reduction of approx. 300-500 mbd depending on the month
• Additionally, Saudi Arabia will not extend the additional cut of 1 mbd from May
• Such actions by OPEC mean that the cartel expects a significant acceleration in demand at the turn of the second and third quarters, which may also lead to price increases, even with a narrowing deficit
• Nevertheless, the scenario where the price of crude oil reaches $ 100 per barrel seems less likely
• In addition, it is worth remembering about the initial negotiations between the US and Iran, which increases the risk that slight oversupply may appear at the end of the year (but this is not the base scenario)

Supply from OPEC + may reach almost 40 mbd at the end of the year, although it will still be about 3 million lower compared to April last year. Source: Rystad Energy

Individual production cuts by the OPEC + group.It can be seen that large producers will not significantly increase production in the coming months. Russia production will remain around 1.5mbd below the reference output. Source: OPEC

Brent crude oil is trading around $ 60 a barrel. On the other hand, looking at the behavior of prices in 2010, the correction could be deeper and even reach $ 50 per barrel. Of course, the further situation will depend whether OPEC members will respect the agreement and from potential rebound in demand in the coming months. The nearest target for the bulls remains around $ 74 a barrel, where the long-term downtrend is located. Prices are currently supported by the  $ 60 per barrel level and the lower bound of the upward trend channel. Source: xStation5

Gold:

• Gold defends key support around $ 1,690 per ounce (determined by the range of correction from the previous historic high of 2011 and the current upwards trendline)
• The price rebound and jumped to $ 1730 per ounce, which indicates that the current correction may continue
• The behavior of bond yields will be very important. Recent wage data from the NFP report showed that pressure on yields may ease. On the other hand, the coming months will see a return of inflation, which may push the yield back to around 2%, which could push the gold price towards $ 1,600 per ounce
• Biden's infrastructure package should work in favor of gold as it continues to expand the money supply in the market

Based on the example from 2010, we can observe that a strong increase in bond yields does not always have such a large impact on the price of gold. Moreover, it is possible that yields will not decline, which would support gold prices. It's also worth noting that net positioning in gold has hit relatively low levels (half the range between overbought and oversold). It is worth noting that it was precisely from these levels that net positioning bounced during the 2008-2011 rally. Source: xStation5

Platinum:

• Ongoing recovery on the platinum market resembles situation from 2008-2010
• Interestingly, unlike many other commodities, platinum has reached all-time highs before the global financial crisis
• Platinum looks to be driven more by economic performance and automotive sector demand, rather than by precious metals performance
• Range of the recovery that followed 2007 sell-off hints at a potential upward move towards $1,550 area
• Among key risks for platinum we can name potential crisis (without debt crisis, we should not experience economic crisis during the next 1-2 years) and strong USD (US dollar is currently strong but should start to lose shine as economic recovery gathers pace)
• Share of car catalyst producers will continue to decrease when it comes to platinum demand. On the other hand, platinum demand should be driven by fuel cell technology in the future

Corn:

• Quarterly reports on planned sowings showed that US farmers plan to sow less corn than expected
• Situation triggered a 25 cents per bushel jump in corn prices on Wednesday, March 31 - resulting in corn prices hitting limit up circuit breaker at CME. Trading limit for daily price moves has been increased to 40 cents per bushel since
• Report showed that US farmers plan to sow 91.1 million acres of corn, compared to 93.2 million acres expected. USDA estimates from February pointed to 92 million acres
• Agriculture analysts do not believe that US farmers plan such poor sowings but a lot will depend on weather conditions. Current weather forecasts do not paint a bright picture
• However, situation creates a risk of a possible abrupt price drop should weather conditions improve, especially as positioning declines
• However, current forecasts for ending stocks and exports to China should support further price advance