Commodity Wrap - Oil, Natural Gas, Copper, Soybean (13.06.2023)

Oil

• Goldman Sachs lowers the end-2023 outlook for Brent oil price from $96 to $85 per barrel, due to excessive production in Russia and Iran, which offsets the impact of additional production cuts by Saudi Arabia.

• Goldman Sachs also points out disappointment in demand growth from China, despite record levels of demand in March this year.

• Number of drilling rigs in the United States continues to decline, although production is slightly increasing

• Positioning on WTI remains extremely low, mainly due to the rebound in short positions. However, overall open interest is rising

• However, net positioning is increasing on Brent crude oil

• The futures curve for WTI changed significantly. The entire curve is clearly downward and, additionally, contango has appeared until September, with the November contract equaling the July contract

US production is rebounding slightly even as number of oil rigs continues to decline. Source: Bloomberg, XTB

Positioning on WTI is extremely low. However, open interest is climbing. Rumors surfaced saying that Goldman SAchs began to short oil recently, just before it issued a new 2023 forecast. Goldman Sachs is considered one of the biggest bulls on the oil markets. Source: Bloomberg, XTB

Futures curve shifted significantly lower and a slight contage surfaced, hinting at weakness in short-term demand. Source: Bloomberg

A triple/quadruple bottom surfaced on Brent/WTI charts. In the case of Brent, low can be found in the $71.50 area while neckline can be found slightly above $78 per barrel. Textbook range of the upside breakout from this pattern suggests a possibility of an upward move to as high as $85. Source: xStation5

Natural Gas

• New weather forecasts have emerged for the summer period, indicating very high temperatures in the next three months

• EIA data shows further declines in drilling rigs and a significant drop in completed wells, primarily in the Haynesville and Anadarko regions

• Natural gas inventories have been growing above expectations in 5 out of the last 6 weeks. Inventories are also increasing compared to last year's levels and the 5-year average

• Gas prices in Europe have once again dropped to around 30 EUR/MWh, but concerns have arisen about the slow replenishment of inventories, which could exert pressure to increase exports, including from the United States

Weather forecasts for summer period point to much higher temperatures, what may boost demand for natural gas from power plants. Source: NOAA

Number of natural gas rigs continues to drop but gas production is holding firm above 100 billion cubic feet per day. Source: Bloomberg, XTB

Natural gas bounced at the beginning of a new week, on the back of new weather forecasts for the US. Price, however, has quickly filled the bullish price gap and is currently testing $2.30 per MMBTU area. Seasonal patterns suggest that local lows may be reached within a week. A smaller-than-expected build in inventories could be a signal heralding bullish reversal. Source: xStation5

Copper

• Copper inventories continue to drop, both in China as well as on global exchanges

• Copper price climbed back above $8,000 per tonne amid hopes for more stimulus for Chinese construction sector

• On the other hand, new loans in China in May disappointed. Credit cycles in China suggest, however, that period of accelerating credit actions has just begun

• According to Citi, the increase in copper demand due to energy transformation will resemble the recovery in the oil market after the 2008 downturn

• CEO of Glencore points out that a significant copper deficit is looming in the market, which could lead to a substantial price increase in the long term

• Trafigura maintains a forecast of $10,000 per ton of copper in the next 12 months and does not rule out $12,000 per ton due to excess demand over supply.

• Positioning is starting to look slightly better for copper as short positions begin to be reduced. However, net positions are still at their lowest since 2020 when copper was trading in the range of $5,000 to $6,000 per ton.

• Copper remains clearly in contango for at least the next 5 years

The 18-month leading Chinese credit impulse is still suggesting that we may be near lows for copper. Simultaneously, the same credit impulse is still low compared to 2012, 2016 and 2020 highs. Source: Bloomberg

Number of short positions on copper is being reduced. Source: Bloomberg, XTB

Copper climbs back above $8,000 and $8,300 per tonne. The next potential target for buyers could be the $8,600 area, marked with the upper limit of the Overbalance structure. Source: xStation5

Soybean

• Quality of soybean crop dropped from 62% to 59% in the previous week

• Concerns are mounting over size of US harvest, what may impact attitude of speculators (can already be seen in CFTC data)

• Strong Brazilian real makes US soybean more competitive

Number of short positions on soybean is being reduced and net speculative position starts to recover from 3-year lows. Source: Bloomberg, XTB

SOYBEAN started to rebound after dropping to 1300 cents per bushel in recent weeks. USDBRL suggests that US prices are too low. Seasonal patterns hint that price may experience a period of range trading in July and rebound in August. Source: xStation5