Commodity wrap - Oil, Soybean, Gold (17.10.2018)

Below we present the most interesting commodity markets this week:

Oil:

• WTI prices move clearly above their 5-year average, the seasonality analysis indicates that we could see lower prices in weeks to come

• The disappearance of a Saudi journalist Khashoggi in the Turkish Consulate in Saudi Arabia is unlikely to undo US arms sales to the Kingdom, other possible reverberations including a deterioration in diplomatic relations should not bring any sustained effects on oil prices

• US sanctions on Iran are coming into effect since November which could take some supply out of the market, nevertheless the OPEC still holds some spare capacity to pump more according to Bloomberg estimates

• JBC, a consulting firm based in Vienna, indicates at a possibility of lower refinery margins in the US due to a comeback of refineries due normal work after a ‘high’ maintenance season

• The more fragile outlook for global growth (the IMF cut its GDP forecasts for 2018, 2019) could trim oil demand (the IEA has already slashed its global demand growth estimates)

In spite of the fact that the estimated OPEC spare capacity has declined over recent months, the cartel seems to still have some potential to pump more crude to offset a lowered supply when US sanction come into effect. Source: Bloomberg, XTB Research

WTI prices more above their 5-year average. Based on seasonality one may expect lower prices in the upcoming weeks. Source: Bloomberg, XTB Research

Should oil prices move below $70.5 per barrel, it would push prices down toward the medium-term upward trend line. The short-term resistance remains at $73. Source: xStation5

Soybean:

• The latest WASDE release brought a pack of better number for almost all key grains including soybean

• A spectre of tariffs is expected to weigh on soybean prices in the weeks to come, the fundamental backdrop remains weak (despite the better report for October)

• Taiwan will increase soybean imports from the US by 30% in this and the following year in order to improve relations with the world’s largest economy, these imports will come mainly from states the most afflicted by tariffs such as Minnesota and Iowa, Taiwan was the seventh largest soybean importer in the world last year

• The net positioning looks still as extreme giving some hopes to see at least a temporary bounce

• China tends to switch to the US from Brazil when it comes to soybean imports (a season ends in the latter), if it does so this year alike, it would mean higher costs for Chinese manufacturers (however, China could look for other destinations to import or to continue import from Brazil when the country decides to deplete its stocks)

The latest WASDE report brought encouraging numbers for the soybean market in October. Nonetheless, the fundamental outlook for the grain looks gloomily. Source: Bloomberg, XTB Research

The net speculative positioning remains extremely low suggesting space for a bounce in the near-term. Source: Bloomberg, XTB Research

After drawing the double bottom pattern in the weekly chart, soybean prices have seen a decent bounce and are en route to $905. This level needs to be broken if bulls want to continue their move. Source: xStation5

Gold:

• CFTC still indicates that the net positioning on gold stays on its lows

• ETF funds have recently begun accumulating gold anew after several weeks of a negative change of holdings

• Correlation between US dollar and gold has weakened lately suggesting that yellow metal prices are at the worse position to benefit from the weaker dollar

• Gold prices strive to break through the 100DMA which would be a tipping point for bulls

Speculative investors hold their bearish attitude as for gold (it needs to be noted that the latest CFTC data does not take into account the last week sell-off seen across stock markets). Source: Bloomberg, XTB Research

ETFs begin accumulating gold anew after several weeks of a negative change of holdings. Source: Bloomberg, XTB Research

Gold prices have approached the 100DMA and if they move through this point, it would mean more gains ahead. Under these circumstances one cannot rule out a move toward $1260 followed by $1300. Source: Bloomberg, XTB Research