Commodity Wrap - Oil, Gold, Sugar, Wheat (01.03.2022)

Oil

• Brent price jumped above $ 100 a barrel. WTI oil is just $ 1.5 off this level

• Strong sanctions targeting Russia raise concerns about the hindered export of gas from Russia or the cessation of oil and gas transfers to countries supporting Ukraine

• Russia is the largest exporter of crude oil to European countries (nearly 3 million barrels per day)

• The United States is considering the release of strategic reserves (up to 60 million barrels), which would lead to price stabilization (the EU, Japan are considering coordinated actions).

• Oil tanker data show that China bought more crude oil from Iran last month than it did at its peak in 2017, despite ongoing US sanctions

• The United States can fight high oil prices, also hitting Russia's main source of income through a nuclear deal with Iran, launching the Keystone XL oil pipeline with Canada, forcing OPEC to increase oil production faster

• BP and Shell sell their Russian assets, Total does not intend to invest any more in Russia in the oil and gas sector. Exxon has not yet announced what it intends to do with its projects in Russia. The lack of Western giants investing in the oil and gas sector in Russia may cause increased problems with the sale of oil from this country

• Total and Shell were responsible for introducing the LNG technology in Russia. Without the participation of these companies, the development of this technology and exports could be jeopardized

• The technical committee at OPEC + revises its forecasts for the oil market oversupply in 2022 to 1.1 million barrels per day (200k barrels less). This has the potential to restore production faster. However, it is worth remembering that some countries have big problems with restoring production (Russia may now have even greater problems)

• JTC indicates OECD end-of-year stocks will be 62mbbl below the 2015-2019 average, while previous forecast was 20mbbl above this average

OPEC's spare capacity is still significant, although this does not mean that the cartel is able to increase the production of 5 million barrels per day more oil in a short period of time. Source: Bloomberg

Brent price (OIL) is approaching $105.00 per barrel for the May contract. Source: xStation5

Gold

• Russia may use its gold reserves to stabilize situation on domestic market after around half of its reserves were frozen

• Russia is a significant producer of gold (around 10% of global production) but sanctions and SWIFT cut-off may make it difficult to sell or buy gold

• Russia announced that it is resuming purchases of gold on the domestic market. Such purchases were halted for around 2 years

• Russia holds around 2/3 of its gold reserves in Moscow and the remainder in other Russian cities

• Gold accounts for around 1/5 of Russian reserves. Russian gold holdings are worth around $130 billion

• Gold can be used to ensure continuity of foreign trade amid sanctions

• Goldman Sachs says that the gold price is most likely to breach $2,000 per ounce. Bank's mid-term forecast points to $2,150 per ounce

Russia can use its gold reserves to ensure continuity of foreign trade, especially with China. Source: Statista

Gold price remains above $1,900. Prices will remain elevated until Russia-Ukraine conflict de-escalates and may test $2,000-2,100 area. Source: xStation5

Sugar

• Sugar with the lowest speculative positioning since 2020

• Higher oil prices should encourage increase in production of ethanol in Brazil, especially when pressure to increase Brazilian oil exports mounts

• On the other hand, plans to scrap fuel tax may lower profitability of ethanol production

• Brazilian real is appreciating, what should also support sugar prices

• Seasonal patterns hint that the turn of the first and the second quarter of the year has been negative for sugar prices

• Pressure on price to increase may arrive in April and May as this is a time when the majority of cargo is shipped. Seasonal patterns also favor price gains during that time of a year

Sugar is nearing a break below a key support level. Source: xStation5

Wheat

• Russia and Ukraine account for 30% of global wheat exports. Two countries export wheat mostly to countries in Asia and northern part of Africa

• Around 6 million hectares of wheat are planted in Ukraine where war rages on

• ANZ expects the biggest price gains to occur in 4 months, when majority of Russian and Ukrainian grain is harvested

• ANZ points that price could jump 50% from current levels (for Australian wheat but impact on prices will be visible in Europe and the United States as well)

• Russia banned its own wheat exports in 2012 amid drought. Move led to a 60% price gain over the next two months

• If exports from Russia and Ukraine are in danger (shipping companies may refrain from sailing to ports in warzone), prices increases by dozen or so percentage points cannot be ruled out

WHEAT price is testing 1000 cents per bushel area. Nevertheless, at this point it is unknown how much Ukrainian and Russian wheat will be shipped to buyers. On the other hand, countries that were buying wheat from Russia and Ukraine began to look for supply elsewhere. Source: xStation5