Commodity Wrap - Oil, Natural Gas, Gold, Copper (28.11.2023)

11:23 28 November 2023

Oil

  • OPEC+ meeting regarding the level of oil production is scheduled to take place on Thursday
  • Earlier, a joint decision on further production cuts was anticipated. However, the meeting was postponed from this past Sunday due to a lack of consensus. The key factor in postponement were production levels of African countries
  • Saudi Arabia wants further production cuts but does not intend to participate in new cuts (apart from the current voluntary cut of 1 million barrels per day)
  • Currently, Russia is exporting significantly more than agreed upon. It is estimated that Russia would need to cut production by 700-800 thousand barrels per day to sufficiently reduce exports next year
  • It is expected that without increased cuts from all OPEC+ countries, Saudi Arabia may abandon voluntary production cuts. In such a scenario, Rystad predicts an average Brent crude oil price of USD 82 per barrel in 2024. It's worth noting that this is above the current price
  • HSBC indicates that there are currently low chances of larger production cuts from OPEC+
  • Fundamentally, the market does not currently require more significant production cuts. To avoid disappointment, Saudi Arabia may announce an extension of the voluntary cut for a longer period
  • One possible scenario is a voluntary production cut from countries such as the UAE, Iraq, and Kuwait at a level of 500 thousand barrels per day until mid-next year, which seems to be a bullish scenario
  • Any additional cuts from Saudi Arabia would likely be short-lived. Saudi Arabia is economically affected by the current significant production cut (Saudi Arabia produces 9 million barrels per day, whereas in 2020, at its peak, it was 12 million barrels per day. The current estimated maximum long-term production level is around 13 million barrels per day)
  • BoA expects speculative positioning in oil to stabilize, followed by a continuation of a decline in net positioning relative to averages
  • Interestingly, ETFs have started reducing their positions in the oil and gas sector due to profit-taking among investors
  • OPEC openly criticizes the IEA for its recent shift in communication, indicating the need to move away from fossil fuels and suggesting low credibility of forecasts

IEA hints at significant oil oversupply in near-term. Will OPEC+ attempt to prevent this? Source: IEA

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WTI (OIL.WTI) climbed back above $75 per barrel. It is a key level to watch for bulls this week. Simultaneously, it looks like 200-period moving average and 61.8% retracement may be acting as a ceiling for oil prices in the coming weeks. Seasonality patterns suggest a flat performance of oil prices in the coming 2 weeks. Source: xStation5

Gold

  • Gold has maintained its position above $2,000 for the third consecutive day, increasing the likelihood of closing the entire month above $2,000 per ounce
  • Historically, gold has never closed a monthly candle above $2,000. Closing above this level would set a foundation for an attempt to reach historic highs
  • The distance to historical highs is only about 3%
  • Further upward movement in gold is supported by the weakening dollar, declining yields, the rebound of central bank balances, and the halt in gold holding sell-offs by ETF funds
  • The price of silver is also strongly rebounding. The gold-to-silver ratio has fallen towards the 10-year moving average, but it is still far from the 10-year static average

GOLD is attempting to hold above $2,000 per ounce. Ongoing gains are driven by rebound in bond prices (drop in yields) and are similar to situations from October 2018, January 2020 and October 2022, which were followed by strong upward moves on gold. Source: xStation5

Gold-to-silver ratio dropped significantly, what suggests that a new trend may be about to begin. It looks like the ratio may drop to 76.00, what with a gold price at around $2,000 per ounce translates to a silver price above $26.00 per ounce. Source: Bloomberg Finance LP, XTB

Natural Gas

  • Gas prices have experienced three consecutive weeks of decline (excluding positive rolling), attributed to an excess of gas in the system
  • Gas inventories were reduced later this year compared to previous years, linked to exceptionally high temperatures in the United States
  • Additionally, El Niño may keep gas prices in the negative territory, as it causes higher temperatures throughout the year in the US
  • The average production in November is currently at a record 107.6 billion cubic feet per day (bcfd), up from the previous record in October at 104.2 bcfd
  • JP Morgan indicates that for the next six months and likely in the upcoming summer season, the narrative should point to a clear oversupply in the gas market
  • The United States is on track to become the leader in LNG exports globally. Nevertheless, the supply within the country appears to be excessive
  • If gas inventories continue to decline in the coming weeks according to seasonality, prices may fall to the range of $2.75 per million British thermal units (MMBTU)
  • On the other hand, if the reduction accelerates, a scenario of a 10-30% rebound is possible, similar to what occurred in the first half of December 2022

Last week's drop in natural gas inventories was smaller than suggested by 5-year average for the period. Source: Bloomberg Finance LP

Inventories reached a local peak later than suggested by 5-year average. It can also be seen that difference between current inventory level and level suggested by 5-year average has widened. Source: Bloomberg Finance LP

Higher-than-average temperatures are expected throughout the United States in the coming 8-14 days. Source: Bloomberg Finance LP

NATGAS has been trading lower in the past 3 weeks but it should be noted that a strong, around-30% price rebound occurred in the first half of December last year. Such a rebound could be triggered should we see a deterioration in US weather forecasts. Source: xStation5

Copper

  • With a clear weakening of the U.S. dollar against the Chinese yuan, we have observed strong increases in copper prices
  • Seasonality has played a role in supporting copper during the autumn period due to increased demand related to the construction season in China
  • Seasonality suggests upward movements in the copper market until the end of the first week of December
  • However, there is significant talk in the market about the rise in copper recycling, which could lead to an increase in available supply. On the other hand, the increase in recycling is driven, among other factors, by strong demand from the high-tech sector

Inventories data (leading) is suggesting that copper may start to trade under pressure soon. On the other hand, inventory levels have stabilized recently. Source: Bloomberg Finance LP, XTB

Chinese credit impulse is also suggesting a possibility of drop in copper prices soon. Source: Bloomberg Finance LP, XTB

On the other hand, Chinese manufacturing PMI index remains at a relatively high level, what raises hopes that gains on the copper market may continue. Source: Bloomberg Finance LP, XTB

Copper price reacted to the bearish trendline. Key support zone can be found in the 8 240 - 8 300 area. A break above the bearish trendline may pave the way for a test of the 8 450- 8 500 area. Source: xStation5

This content has been created by XTB S.A. This service is provided by XTB S.A., with its registered office in Warsaw, at Prosta 67, 00-838 Warsaw, Poland, entered in the register of entrepreneurs of the National Court Register (Krajowy Rejestr Sądowy) conducted by District Court for the Capital City of Warsaw, XII Commercial Division of the National Court Register under KRS number 0000217580, REGON number 015803782 and Tax Identification Number (NIP) 527-24-43-955, with the fully paid up share capital in the amount of PLN 5.869.181,75. XTB S.A. conducts brokerage activities on the basis of the license granted by Polish Securities and Exchange Commission on 8th November 2005 No. DDM-M-4021-57-1/2005 and is supervised by Polish Supervision Authority.

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