Commodity Wrap - Oil, Gold, Soybean, Copper (13.08.2024)

Oil

• Oil is continuing the strong rebound launched at the beginning of the previous week, with Brent trading around 9% above intraday lows from Monday last week
• Gains accelerated yesterday as media reports suggested that Iranian attack on Israel, in response to killing of Hamas leader in Teheran, could be imminent
• Fox News reported on Monday that Iran could attack Israel within the next 24 hours. However, White House spokesman Kirby said that the attack may come within a week
• OPEC cut its global oil demand growth forecasts for 2024 and 2025. OPEC now expects demand to grow by 2.11 million barrels this year (prev. +2.25 million barrels) and by 1.78 million barrels in 2025 (prev. +1.85 million barrels)
• OPEC said that downward revision is largely due to weaker growth outlook in China
• IEA maintained its 2024 global oil demand growth forecast unchanged at 970 thousand barrels, but forecast for 2025 was cut to 950 thousand barrels (prev. 980 thousand barrels)
• IEA also said that global oil inventories declined by 26.2 million barrels in June, marking the first drop after four months of increases
• While there were some concerns about a slow start to the summer driving season, IEA says that US summer driving season is set to be the strongest since Covid pandemic

Brent (OIL) bounced around 9% off the intraday lows reached on Monday last week. Price tested $82 per barrel resistance zone yesterday, marked with 200-session moving average and 50% retracement of the upward move launched in late-2023. Fears of Middle East escalation are driving oil price now, with investors looking past demand growth forecast cuts by OPEC and IEA. Source: xStation5

Gold

• Fears of escalation in the Middle East as well as increased dovish Fed bets in the market are pushing gold price higher
• Money markets price in 100 basis point of Fed easing by the end of 2024
• With 3 FOMC meetings left in 2024, this means markets are expecting Fed to cut rates by 50 basis points at least at one meeting
• Media reports suggesting an imminent Iranian attack on Israel pushed gold to $2,475 per ounce area on Monday, less than $10 below intraday all-time highs reach in July this year
• As the attack did not occur and some media hinted that it may never occur if Gaza ceasefire deal is reached, gold gave back part of Monday's gains
• This week's US inflation data, especially tomorrow's CPI reading, may have big impact on money markets pricing of Fed rate cuts
• Market is expecting US headline CPI inflation to stay unchanged at 3.0% in July, while core measure is expected to slow from 3.3 to 3.2% YoY
• A lower-than-expected CPI reading could further boost dovish bets in the markets. In such a scenario, USD should weaken while gold should benefit
• However, it is worth noting that higher-than-expected reading could trigger a big hawkish reaction as current money market pricing already seems very dovish and data from the US does not really justify such a strong Fed easing as markets expect

GOLD continued to rally on Monday amid still-tense situation in the Middle East, and tested $2,475 per ounce resistance zone. Bulls failed to push the price above, and a small pullback can be observed today. However, should US CPI data surprised to the downside this week, another test of the $2,475 area cannot be ruled out. Note that intraday all-time highs can be found less than 1% above current market price! Source: xStation5

Soybean

• US soybean price dropped below $10 per bushel for the first time since end-Q3 2020
• SOYBEAN is trading around 25% year-to-date lower
• The move lower is driven by fundamentals, especially forecasts of strong harvest and ample supply
• US Department of Agriculture (USDA) said in a monthly report that it estimates US soybean harvest to reach around 4.589 billion bushels this year (exp. 4.472 billion)
• Estimated yield per acre of 53.2 bushels is expected to be highest on the record
• USDA noted that there was a sudden change in weather patterns in July resulting in cooler and wetter conditions
• China expects to import 98.37 million tons of soybeans in the marketing year ending in September 2024, marking an increase of 2.27 million tons compared to estimates provided in previous monthly report
• According to China Agricultural Supply and Demand Estimates report, lower soybean prices are encouraging more purchases by Chinese buyers

SOYBEAN is in freefall as news of ample supply outweigh news of increased demand from China. Price dropped below $10 per bushel for the first time in almost 4 years and is down 25% year-to-date. The next potential support zone to watch can be found in the $9.50 per bushel area, marked with price reactions from 2016-2020 period. Source: xStation5

Copper

• Rebound on the copper market, which was launched at the end of the previous week, has been halted by the 200-session moving average
• There are mounting signs of weakening demand within Chinese economy, and it is pressure prices of industrial metals
• The aforementioned OPEC oil demand growth cut on the back of weaker outlook for China is one of such signs
• The other is a significant pick-up in Chinese copper held in inventories abroad. London Metal Exchange said that Chinese-origin copper accounted for over 70% of the increase in exchange-monitored inventories in July
• Inventories of Chinese-origin copper also increased significantly in South Korea and Taiwan, while Chinese data showed copper exports running at a record pace
• Private and official PMIs are both suggesting Chinese manufacturing sector was in recession in July
• Monthly activity data from China for July which will be released on Thursday may be another test for copper traders

Recent rebound on the COPPER market looks to have been halted by the 9,050 resistance zone, marked with 200-session moving average (purple line) and 61.8% retracement of the upward move launched in late-2023. If monthly activity data from China scheduled for this week confirms weakness of the Chinese economy, COPPER may generate another leg lower in the ongoing downtrend. Source: xStation5