Commodity Wrap - Oil, Natural Gas, Wheat, Gold (11.06.2024)

Oil

• Oil is already rebounding almost 3% this week and over 6% from the last week's local low. If Brent closes above $80.90 per barrel this week, a bullish engulfing pattern will emerge
• The Saudi Arabian Minister of Energy stated that investors misinterpreted the recent decision and that it is not a return to focus on market share from the OPEC+ group
• However, it is worth noting that with limited demand growth and the return of supply from OPEC+ from October this year, there will be a significant oversupply in the market
• This may force the OPEC+ group in August or September to change its decision and maintain voluntary production cuts until the end of this year
• Data on positioning on Brent on ICE showed a decline in net positions to the lowest level since 2014. Often such a drastic drop in net positions has generated a contrarian signal, although it should be noted that the low in positions in 2014 did not mean a price low. Oil then fell another $40 per barrel before the local low
• On the other hand, long positions have reached a local extreme minimum, similar to several times over the past few months (since December 2022). If long positions rebound 2-3 times in a row, it could indicate an actual market turnaround for oil
• However, it is worth noting that since the end of 2022, oil has remained in a fairly wide consolidation of over $20

Positions in Brent have dropped to an extremely low level. This is related to a decline in long positions and an increase in short positions among funds. If long positions rebound in the next 2-3 weeks, it could indicate the end of the declines. Source: Bloomberg Finance LP, XTB.

A bullish engulfing pattern could potentially emerge this week if prices remain around $81 or higher. Source: xStation5

Natural Gas

• The price of natural gas in the US exceeded $3.00/MMBTu at the beginning of this week due to another rise in temperatures, which may increase the demand for gas in the near future
• On the other hand, the number of cooling degree days has returned to around the average, and daily gas consumption has also returned to around the 5-year average
• The peak in gas consumption for electricity production intended for cooling purposes occurs at the turn of July and August. Then, at the end of September, there is a local low in gas consumption
• Seasonality in the gas market indicates that a correction is possible in the near future. However, throughout June, temperatures across nearly the entire United States are expected to be significantly above average

The number of cooling degree days has returned to around the 5-year average, but since the beginning of May, it has generally been above average, leading to increased demand for gas. Source: Bloomberg Finance LP

Number of gas drilling rigs has clearly decreased, while production is stabilizing. It is worth noting that in July last year, there was a rebound in production despite the decline in drilling rigs. Slightly higher prices now may lead producers to want to increase production. Source: Bloomberg Finance LP, XTB

Seasonality indicates that prices should now be falling. On the other hand, current prices have reached the 5-year average. A local low should occur within the next 2-3 weeks. Source: Bloomberg Finance LP, XTB

Wheat

• The winter wheat harvest in the US is doing significantly better than average. 12% of the acreage has already been harvested, whereas in previous years, harvesting usually started around this time
• The quality of winter wheat has decreased but remains higher than the 5-year average
• The quality of spring wheat is also declining but remains well above the 5-year average
• Grain inspections for export in the US showed significantly less wheat intended for export than in the previous week
• The quality of wheat crops in France is improving but remains noticeably below last year's levels. The suspension of wheat imports in Turkey in the near future may lead to an increase in available supply in the coming months. On the other hand, the import ban is set to last until mid-October, which means it will be lifted when the harvest season is over in most places around the world, and storage facilities are full
• Wheat has lost more than 15% since its local peak at the end of May. Seasonality indicates that we could see another 2-3 weeks of declines, although there is a roll-over in progress, and net speculative positions remain quite high
• The key technical level for bulls to maintain is around 600 cents per bushel. Once this level is breached, the next significant support zone is between 565-575 cents per bushel

Harvesting in the US is progressing very quickly, which has recently contributed to a drop in prices on the US market. Source: Bloomberg Finance LP, XTB

Potential harvesting problems in Russia have led to a rise in prices. However, as American prices have fallen to around the same level as Russian prices, those prices have also started to decline. The alignment of Russian and American prices potentially increases the pressure on the rebound of exports from the US. Source: Bloomberg Finance LP, XTB

Wheat prices are falling, and a local low should be reached within the next 2-3 weeks. Source: Bloomberg Finance LP, XTB

Gold

• Gold experienced a significant decline at the end of last week due to strong data from the USA, which shifts the probability of the first Fed rate cut to November
• Previously, the first possible rate cut was expected in September
• Gold is holding support around $2,300 per ounce, but this level could also be the potential neckline of a Head and Shoulders (H&S) pattern, with a range indicating a level of $2,130 per ounce
• The drop last Friday after the NFP data caused gold to trade below the 50-day moving average for the first time since February
• Seasonality in the gold market suggests that June may see consolidation or downward pressure, but potential increases could appear later in the summer. There may be a confluence of events where discussions about a Fed rate cut resurface during the summer. The key event will be the July meeting, which might signal an open door for a rate cut in September
• Long positions in gold remain at a high level, and there has also been a recent reduction in short positions. Extreme positioning in gold is still far off
• It's important to note that there could be greater volatility on gold market when Fed announces decision at 7:00 pm BST this Wednesday

The price reacted to support around $2,300 per ounce. This level is also associated with the neckline of a potential H&S pattern. Seasonality indicates consolidation or slight declines over the next week. Source: xStation5