Commodity Wrap - Oil, Natural Gas, Sugar, Silver (13.09.2022)

Oil

• Weaker USD provides support for oil prices

• United States say that Iran's latest response to EU proposal is a step backwards in nuclear deal talks

• Morgan Stanley lowered Q4 2022 Brent price forecast from $110 to $95 per barrel. Forecast of $100 per barrel for 2023

• Morgan Stanley also expects Russian oil flows to drop considerably next year as embargoes take effect

• Russia has almost doubled oil exports to "friendly" countries but it will be unable to fully offset lack of exports to EU

• Japan boosted fuel imports significantly due to high LNG prices, suggesting that gas-to-oil switch may be just beginning

• Japanese oil imports hit a 4-year high in August

Russian maritime oil exports to "friendly" countries almost doubled but increasing it further may be a hard task. Source: Bloomberg, Kpler

Japanese import of oil and oil derivatives is on the rise. Source: Bloomberg, Vortexa

Natural Gas

• European natural gas prices remain under pressure in spite of uncertainty over energy supplies

• Gazprom does not plan to resume gas flows via Nord Stream or boost flows via other pipelines

• European gas stockpiles are almost 84% full. Deliveries to Europe are relatively large, even given lack of supply from Russia. Meanwhile, consumption remains relatively small

• According to Guardian, EU will not agree on price caps on natural gas in order for LNG exporters to remain competitive

• According to Bloomberg report, EU will agree on a €180-200/MWh price cap on energy prices, which will be financed with a 33% windfall tax

• Energy consumption in the EU will be reduced by 10%

• Heating season begins by the end of October

• Natural gas prices in the United States rebound despite recent big inventory builds

• Freeport LNG terminal is expected to resume operations in mid-November

European gas inventories continue to fill up and are almost 84% full already. It should be noted that inventories will last for around 2 months in case of complete halt to supplies. Source: Bloomberg

Sugar

• Sugar production outlook in Brazil, Europe and India deteriorated

• Sugarcane harvest in Brazil was poor and ships had to wait in long queues in Brazilian ports for sugar to be loaded

• Drought in Europe caused outlook for sugar beet harvest to deteriorate

• Outlook for Indian sugar exports was lowered. Traders speculate that exports outlook could improve once prices jump above 19 cents per pound

• Futures spreads show that market is concerned about availability of sugar in near-term

• Sugar prices are also support but recent rebound in oil and corn prices

Spread between October and March sugar futures widened to a record level, pointing to a stretched physical market. Source: Bloomberg

SUGAR rebounds from a key support near 23.6% retracement of the latest major upward impulse. Seasonal patterns, higher oil and corn prices support the scenario of price rebound towards the upper limit of the ongoing trading range. Source: xStation5

Silver

• Strong rebound in silver prices is a result of weaker USD and hopes that inflation peak was reached already

• Situation on the bond market does not justify rebound on the precious metals market. However, yields may be more reflective of the outlook on interest rates over a 1-year horizon

• Speculative positioning isn't looking too bullish - large increase in number of short positions and a moderate increase in number of long positions. However, it also shows that interest in precious metals is increasing

• ETFs continue to sell silver holdings

Net speculative positioning on silver dropped to an almost extremely low level. Source: Bloomberg

Silver prices are supported by a weaker US dollar. Rebound on the silver market is much stronger than on the gold market, hinting that the silver rally may have gone ahead of itself. Source: xStation5