Commodity Wrap - Oil, Natural Gas, Wheat, Copper (08.08.2023)

Oil

• Oil is pulling back after data from China showed weakness of the economy. Price decline exceeds 2.5%, and WTI is testing the $80 per barrel range

• Commerzbank is raising the end-2023 target price for Brent crude to $90 per barrel from $80 per barrel

• At the same time, Commerzbank anticipates a gradual withdrawal of Saudi Arabia from the additional production cut in the fourth quarter, which could lead to a slight oversupply returning by the end of the year.

• Saudi Arabia extends production cuts into September. Russia is also expected to continue limiting exports in the coming month.

• The next OPEC+ meeting is scheduled for early October. It is expected that Saudi Arabia might announce a reduction in production cuts at that time

• The market anticipates that the deficit in the third quarter and early fourth quarter could reach 1.5-2.0 million barrels per day, which could exert further upward pressure on gold

• Demand for oil and products in China increased by 1.7 million barrels per day in May, reaching a record level of over 17 million barrels per day (according to JODI data).

• Comparative inventories in the USA are starting to decrease noticeably. It is also not expected that the US will decide to make purchases for strategic reserves in the near future (assuming it will be done when prices are below $70 per barrel).

Comparative inventories are beginning to decline, what may prove to be a support for oil prices. It looks like global stockpiles may be drained at the pace of 1.5-2.0 million barrels per day until the end of this year. Source: Bloomberg Finance LP, XTB Research

While the fundamental situation looks to be supportive for oil price, data from the Chinese economy led to a pullback on the crude market today. WTI is testing $80 per barrel area and a key support zone can be found slightly lower, near the $79 mark. Source: xStation5

Natural Gas

• The gas price in the US has surpassed the $2.7 USD/MMBTU level, while the price in Europe reaches around 30 EUR/MWh. Prices in Asia still remain under pressure and are falling below European levels, which is, however, linked to low demand in that region

• Gas inventories in the US have recently increased by 14 bcf to a level of over 3000 bcf. However, slightly greater growth was expected. If subsequent reports show a further decrease in inventory growth, there might be an attempt to reduce comparative inventories

• The upcoming heatwave in the US could lead to a potential decrease in gas inventories in the next 2 weeks. If such a situation occurs, it would result in a significant retraction of comparative inventories

• The seasonality still indicates that gas price performance is worse than the 5-year or long-term average

Natural gas comparative inventories began to drop, which may be an important signal for NATGAS. Source: Bloomberg Finance LP, XTB Research

Seasonal patterns for natural gas market suggest that we are now in the midst of the biggest upward impulse which should end with a period of range trading at the beginning of autumn. Source: Bloomberg Finance LP, XTB Research

NATGAS climbed above $2.7 per MMBTu area amid expectations of a heatwave in the United States, that will boost demand for gas from power plants. Key resistance can be found in the $2.8 per MMBTu area. On the other hand, near-term support can be found in the $2.45-2.50 area. Source: xStation5

Wheat

• India expects record harvests in 2023 at a level of around 112 million tons. Stockpiles of the commodity are growing in the country. India is also considering a 40% reduction in tariff on the import of foreign wheat

• Simultaneously, private estimates point to lower production growth due to weather conditions. Wheat processors indicate a production close to 103 million tons

• India is one of the world's largest wheat producers and last year banned exports due to poor yields. This year, while battling rising prices, India aims to allow greater foreign competition

• Wheat prices remain volatile primarily due to reports from Ukraine and Russia. While Russia continues to increase its exports, Ukraine is using drones to attack port infrastructure, potentially impacting the export prospects from that country

WHEAT prices jumped after recent attacks of Ukrainian drones on Russian naval ports. However, price is beginning to give up gains and it looks like talks over return to Black Sea grain agreement may resume after the main harvest season. Source: xStation5

Copper

• Trade data from China is showing very poor performance. Exports have fallen by 14.5% YoY, indicating the weakness of the global economy and reduced demand for Chinese products. This is the second-largest drop in recent years, following the decline in March 2020 due to the COVID-19 pandemic

• Imports are also experiencing a double-digit decline, revealing internal weakness

• The import of raw copper for July was on average 3% lower than in June, when imports were at their highest in 5 months. Meanwhile, the import of copper concentrate used in smelters has dropped to a 9-month low

• Copper inventories on global exchanges remain at an extremely low level. If the price were to respond to inventory levels with a delay, we should expect an upward trend in the near future

• On the other hand, considering the credit impulse, we might be approaching a local peak. The credit impulse is decreasing in China

Copper inventories on global exchanges are at extremely low levels. Source: Bloomberg Finance LP, XTB Research

Chinese credit impulse is decreasing in another sign of weakness of the Chinese economy. While copper looks to be the metal of the future, lack of recovery in Chinese demand (China accounts for around half of global demand) may make it hard for copper prices to rally. Source: Bloomberg Finance LP, XTB Research

Data from China triggered a sell-off on COPPER market. A test of the upward trendline in the $8,100 per tonne area cannot be ruled out. Seasonality patterns suggest that the market may return to gains in the middle of this month. Source: xStation5