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CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Commodity Wrap - Oil, Natural Gas, Aluminium, Cotton (28.09.2021)

10:35 28 September 2021

Oil

  • Brent tests $80 per barrel zone and reaches the highest level since 2018

  • WTI is trading near recent local highs at $77 per barrel. Breaking above would put the price at the highest levels since 2014

  • Goldman Sachs boosted its oil price forecast and now expects Brent to reach $90 by year-end and WTI to reach $87

  • According to Goldman Sachs, oil market deficit is growing amid limited supply increase from OPEC+ and limited impact of Delta outbreaks on demand

  • Moreover, oil supply was hit by one-off factors, like hurricanes in the US

  • There is a high risk of oil price rallying into year's end amid spike in demand

  • According to Goldman Sachs forecasts, oil market may begin to stabilize in the second half of the year when US shale and OPEC+ production adjusts

  • Market expects that at least some of the Venezualan and Iranian oil may return to the markets next year

  • Daily reduction in stockpiles around the world sits at record levels

US oil stockpiles are close to dropping to a 5-year low. In theory, a local low in inventories should be observed at this point of the year. However, not all of the oil production in the Gulf of Mexico was restored after recent hurricanes. Source: Bloomberg

Oil price gains continue but speculative positioning sits at extremely low levels. Number of open long positions is very small. Having said that, continuation of the upward move cannot be ruled out. Source: Bloomberg

Oil futures curve has changed significantly over the course of the past week. Price difference at the long-end of the curve is as high as $2.50 per barrel. Source: Bloomberg

Natural Gas

  • Natural gas jumped above the $6 per MMBTU and reached the highest level since 2014

  • Breaking above $6.40 per MMBTU would leave natural gas prices in an uncharted waters

  • The last time natural gas was so expansive, the US shale revolution was just beginning

  • Issues with deliveries left European and Asian stockpiles at low levels

  • Around a quarter of the US Gulf production remains shut following recent hurricanes. Production may not be resume until next year

  • Cold December may triggered a spike in the natural gas prices in Europe, Asia and the United States

  • On the other hand, should situation be similar to recent years, a large downward correction may arrive on the natural gas market

US natural gas stockpiles sit below the 5-year average. Source: Bloomberg

The next possible target for bulls is $7 per MMBTU area, where 161.8% exterior retracement of the recent 2-year downward move can be found. Local high should be reached in the second or third week of November. However, weather conditions may push this high as far back as January or even February. Source: xStation5

Aluminium

  • China plans to release part of its strategic base metals reserves, including aluminium, in a move aimed at lowering prices

  • Aluminium production in China is becoming a problem amid new environmental policies

  • Post-pandemic economic recovery suggests that aluminium stockpiles may continue to fall

Aluminium stockpiles on LME drop. Situation in other parts of the world looks similar. Source: Bloomberg

Aluminium trades around 13% below all-time highs. On the other hand, prices dropped recently amid plans by China to release some of the strategic reserves. Source: xStation5

Cotton

  • Situation on the cotton market starts to resemble 2010. A breakout from a similar trading range as in 2008-2010 occurred

  • Seasonal patterns suggest that bullish momentum may strengthen at the beginning of November

  • Cotton price sits at the highest level since 2012

  • Weather conditions in the United States are far from perfect for cotton - large rainfalls could be spotted in Texas and Mississippi river delta

  • Cotton demand is picking up in China. Demand from Thailand and Turkey is strong

  • Noticeable reduction in the number of open short positions while open interest continues to increase

  • It is expected that this year's deficit will continue in 2022 as well

Cotton stockpiles in the United States are very low. Global stockpiles have also dropped in recent months. Source: Bloomberg

Cotton price tested 100 cents per pound area. It should be noted that the situation on the cotton and oil markets is similar to the one from 2010. Demand situation suggests that price gains may continue. Seasonal patterns point to a new upward impulse being launched at the beginning of November. Source: xStation5

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