Commodity wrap - Oil, natgas, gold, soybean (04.04.2023)

Oil:

• OPEC+ surprised and some member countries decided to voluntarily cut production last weekend. Saudi Arabia has declared to cut production by 500 000 b/d, Iraq by 211 000 b/d, UAE by 144 000 b/d, Kuwait by 128 000 b/d, Kazakhstan by 78 000 b/d, Algeria by 48 000b/d, Oman by 40 000 b/d, Gabon by 8 000 b/d. Russia will maintain previous reductions of 500,000 brk per day until the end of this year
• The overall reduction in production amounted to 1.6 million brk per day. OPEC+ was producing almost 2 million brk per day below the production target. Theoretically, this could leead to a lack of supply adjustment. However, declarations were made by countries that have the ability to increase production, so it can be expected that the actual cut will be around 0.7-0.9 million brk per day.
• Aforementioned actual cut may cause a slight oversupply to turn into a small deficit, which should rather not exceed 1 million brk per day globally. Although increasing imports by China in the summer season may lead to further increase in the global deficit even to 1.5 million brk per day. In such scenario, oil prices could reach 90-100 USD per barrel in Q3 and Q4 this year.
• RBC forecasts that takes OPEC+ decision into account suggest that the deficit in the following quarters may approach or even exceed 1 million brk per day and the price may exceed USD 90 per barrel
• According to the G7 countries, the OPEC+ decision may cause problems in enforcing the price cap on Russian oil. In addition, reduced production in Russia does not necessarily mean smaller exports which is hided by exports to countries such as Saudi Arabia, India, Turkey and Brazil.
• OPEC+'s decision may be dictated by political issues, as Saudi Arabia was allegedly assured by the US that it would increase oil imports to

Demand and supply may be the least aligned in the third quarter of this year. A boost in demand in China at this time could lead to price increase to $90-100 per barrel. Source: RBC Capital Markets

Currently the balance of the oil market shows a slight oversupply, which may, however, turn into a small deficit. Source: Bloomberg, XTB

The forward curve has significantly increased at the short end which may mean an increase in short-term demand. Source: Bloomberg

Natural Gas:

• Natural gas May contract tested 2.00 USD/MMBTU as US heating season is heading to an end 
• Data for the previous or current week may finally show natgas stock increase in the US. On the other hand, recent weeks have shown that natural gas inventory decreases were slightly higher than the 5-year average
• Nevertheless, comparative inventories remain high. At least 2-3 reports in a row that would show a larger decline in inventories or smaller rebuilding of storage would give a seasonal signal for a rebound of natural gas prices.
• At the moment, we see a further weather improvement in the United States as winter is finally coming to an end
• Freeport export terminal is shipping natural gas at all-time high levels and natgas production in lower 48 states has dropped to 97 bcfd, a relatively low level compared to February highs of 104 bcfd
• If production does not rebound in the near term, this could be an important signal indicating that low prices have the effect of limiting production capacity
• The current contango through December is $1.50, which means the December price is trading around $3.5/MMBTU. Such a large contango reduces potential profits from a long position if natgas starts a long-term rebound (or even increases losses if the natgas price does not break the $3.5/MMBTU level in the coming months

It will be hot in the US! This may mean that in the next 2-4 weeks there will be no need to heat houses in the US. At the same time, if high temperature anomaly continues in May and June, the number of cooling degree days will increase significantly. This in turn will create a higher demand from powering fans and air conditioning. It is worth mentioning the recent strong decline in production in the US, which may be an important signal for the price. Source: Bloomberg

Comparative inventories show a slight decline (inverted axis) which theoretically could be a weak signal that local price low may be close or is even behind us. On the other hand, comparative inventories have not risen to an extremely high level that can be seen on the chart in 2012, 2016 and 2020, therefore the signal is not yet quite strong. At the moment, weak demand can be observed and surprisingly relatively low production compared to recent months. Source: Bloomberg

The price clearly rebounded from around $2.0 MMBTU, but is still moving inside the downtrend channel looking at H1 interval. Source: xStation5

Gold:

• Gold consolidates inside a triangle pattern and below $2000 an ounce waiting for a possible signal from the US yields or the US dollar.
• It is worth mentioning that despite the NFP release on Friday it will be a day without trading on US markets (Good Friday). This week should theoretically not bring any major price moves in gold due to the limited volume.
• Further reduction of short speculative positions and increase of long positions continues. Net positions are at their highest level since June last year. 
• On the other hand, ETFs stopped buying gold again.

Speculative traders increase their long positions on futures and decrease short positions which is still a positive signal for the bulls. Source: Bloomberg

The price is consolidating inside a triangle pattern, waiting for a signal from the dollar or yields. Source: xStation5

Soybean:

• Soybean price has experienced a major rebound in a turn of March and April using a huge appreciation of the Brazilian real against the US dollar.
• The price of corn has also rebounded, but not as strong as in case of soybean
• There have been considerable concerns regarding the soybean planting prospects in the wake of the recent frost. USDA reported 87.5M acres of soybean planting prospects for the current season which was near the low end of analysts estimates. 
• USDA data also showed US soybean inventories are 13% lower from levels a year ago

The price of the commodity increased nearby 2023 highs. Moreover, a good perspective of exports to China should keep prices at relatively high levels. Source: xStation5