Commodity Wrap - Oil, Gold, Soybean

Oil:

• Saudi Arabia and Russia announce increased production amid started price war

• Saudi Arabia may increase its production even by 2 mbd

• In case of 0.4% global economic slowdown, the global demand for oil might on average decrease by 3mbd 

• Provided that OPEC countries and Russia increase their production, the implied inventories growth may range from 3 to 6 mbd

• During the last 2014-2015 price war, the oil price dropped more than 60%. Currently the market approaches a 60% fall from the local peak

• Speculators have not accommodated to the recent falls

• Societe Generale expects $25-$30 per Brent barrel in Q2, $35 per barrel in Q3 and $40 per barrel in Q4.

The most likely scenarios indicate oversupply of 2-4 mbd. Source: Bloomberg, EIA, XTB

The last price war ended with 62% price decline in the first phase - very similar to the ongoing price war. Russia may actually want to restrain the U.S. shale companies and increase the demand by price declines (to $15-$25 per barrel). These prices cannot be kept in the long-run due to production cuts in less profitable plants and reviving demand. Source: xStation5

Gold:

• Swine flu is a proof that the U.S. yields may actually continue falling, which would be a positive sign for the gold prices.

• After the weekend, the gold prices opened with only $20 price increase and the prices quickly deteriorated from the $1700 level.

• Speculators tend to reduce their long positions, yet ETFs increase their share of gold positions.

• U.S. yields fall to record lows, which indicates a possible further upward trend for gold prices. At the same time, it might be a warning sign. 

Gold net positions fell a little, still ETFs tend do buy gold these days. Source: Bloomberg.

One could observe record low U.S. yields. Such declines took place during the last all time highs of gold prices. The next year, gold prices ranged from $1650 to $1800 per ounce. Source: Bloomberg

Soybean 

• This week brings us a sharp prices decline, the next support can be found at 855 cents per bushel

• Further depreciation of the Brazilian real may put pressure on American prices

• On the other hand, the number of short positions tend to fall, which leads to the higher number of net positions. The latter seems to follow the soybean prices

• China may increase their demand for soybean and other agricultural products amid coronavirus restraint. Trump’s pressure resulting from the trade deal may also be a potential cause

Soybeans net positions may turn out to rise in the short-term - similar to the late-2019. Source: Bloomberg

Soybean prices are rebounding from the crucial support zone. Interestingly enough, the Brazilian real tends to bounce back as well. Source: xStation5.