Commodity wrap - oil, palladium, gold, corn (12.10.2021)

Oil:

• Brent tests key resistance zone, just below 2018 highs - next resistance is located $ 90 per barrel
• Very steep structure of the forward curve
• The spread difference between the contracts was $ 1.00 earlier this week, while in a 12-month perspective, the difference is over $8.00
• Forecasts of hyperinflation in the United States have emerged, which could lead to an increase in oil prices in the range of 140-180 dollars per barrel
• On the other hand, these levels appear irrational given the potential destruction of demand
• WoodMac points out that $ 80 a barrel was previously thought to be a destructive demand level. Currently, however, due to the shift in demand from gas to oil, destructive demand level may have been moved higher
• Saudi Aramco promises to supply more oil to refineries in Asia
• China closed 60 coal mines due to floods, which not only increases coal prices, but also increases demand for oil and gas
• Previously, China ordered 72 mines to increase their coal production, including the most environmentally harmful varieties, despite the fact that mines have complied with the limits set by environmental regulations
• It is worth mentioning that China maintains an unofficial ban on Australian coal
• Iran wants more investments and foreign products - it offers oil in return

Brent price is approaching a key supply zone that ranges from $ 85 to $ 90 a barrel. Source: xStation5

The difference in 12-month contracts  already exceeded $ 8 a barrel, which in the past indicated a "peak" in short-term demand. Source: Bloomberg

Palladium:

• Commodity price rebounded strongly, despite the fact that the fundamental outlook remained unchanged
• Nornickel significantly lowers its deficit forecast for this year to 0.2-0.3 million ounces from 0.4-0.5 million ounces and to 0.3 million ounces from 0.7 million ounces for 2022
• Nornickel covers approx. 44% of the palladium supply
• The automotive sector accounts for 83% of all palladium demand
• The head of sales of the Russian mining company indicates that demand will return to normal only in 2023
• Palladium sales in 2021 are expected to be similar to 2020 and amount to 2.6 million ounces (compared to 2019, it was a 12% decrease in sales)
• The company is selling a large amount of its inventory this year
• The company plans to resume production in previously flooded mines
• It is worth noting that power cuts can have mixed effects on the price of palladium. On the one hand, mining is very energy-intensive. On the other hand, energy shortages, particularly in Asia, may lead to production stagnation in the automotive sector.

The key resistance for palladium is located around $ 2,250 and $ 2,300. Source: xStation5

Gold:

• ETFs continue to sell gold, on the other hand, a slight recovery from speculative positioning
• Bond yields are clearly rising, pointing to potentially lower gold prices. The US dollar is also gaining
• US government collapse unlikely, on the other hand gold market investors may not believe in the start of QE tapering in November, given weak labor market data for September​​​​​​​

ETFs are still selling gold. Source: Bloomberg

We can currently observe a very large divergence of TNOTE and gold prices. A similar difference was noticeable in March. Source: xStation5

Corn:

• The price remains in a narrow range of 500-550 cents per bushel - only a decisive break any of these level could lead to bigger price movements
• The 15-year seasonality indicates a potential start of an upward movement, on the other hand, the 5-year volatility shows that the coming weeks may be mixed
• A slight recovery on the part of speculators - we have generally seen a sell-off since April this year
• The quality of corn crops in the USA leaves a lot to be desired. In case of bad weather (like last year), possible very weak harvest which will lead to price recovery
• Late vegetation last year, followed by flooding and snow, prevented the harvest of the entire corn crop, which led to a clear price rebound.
• This year, we also have a significant increase in the export of raw materials, in particular to China​​​​​​​

Corn prices have been trying to rebound for several weeks. The lack of a clear rebound in key US agricultural commodities is probably due to the weak Brazilian real. The key factor for prices will be the start of the US harvest - the later the better for the prices. Source: xStation5

The quality of corn crops has been relatively low within the last 5 years. In theory, the weather could make this season as bad as last year. Source: Bloomberg