Commodity Wrap - Oil, Soybean, Gold, Copper

Oil

- Oil prices plummeted when new China tariffs were announced. Brent declined over 6% since the beginning of the month
- Bank of America Merrill Lynch estimates that the latest US tariffs will decrease global demand for oil by 250-500k barrels/day
- Iran seized another tanker in the Gulf region saying it was smuggling oil
- China could respond to the US tariffs by buying Iranian oil in a bid to undermine foreign policy of the United States
- Iranian oil production dropped to 550k barrels/day in June, down from 2.5kk barrels/day in June 2018. In case China starts large-scale purchases of Iranian crude and allows production in the country to return to year ago levels, oil price may be thrown into a tailspin
- Oil inventories were declining over the past few weeks and last week saw another steep drop. Nevertheless, total level of oil stockpiles still remains above the 5-year average

In spite of another significant drop in stockpiles, US oil inventories remain above the 5-year average. Source: Bloomberg

WTI (OIL.WTI) began to trade within a downward channel some time ago. Price dipped towards the lower limit of the channel - place from where the correction could start. However, one should keep in mind that disappointing DOE report could push the price below the channel and potentially towards the price zone at 23.6% Fibo level. Source: xStation5

Soybean

- China ordered state-owned enterprises to cease agricultural goods purchases from the US amid recent re-escalation in trade wars. Private companies from China are said to refrain from buying US soybeans amid uncertainty
- China will try to substitute for the US product with soybeans from Brazil and Argentina
- US soybean price dropped on trade concerns while Brazilian and Argentinian premiums widened
- Latest USDA report (released on Monday) showed that 54% of the US soybean crop is in good-to-excellent condition. Soybean price moved lower as the print was better-than-expected

As US agricultural products became a part of the trade war re-escalation over the weekend, reaction is not visible in the positioning data yet. However, even now net speculative positioning remains in the negative territory. Source: Bloomberg

Downward move on the soybean marked that, was launched last week, was halted in the vicinity of 50% Fibo level of May-June upward move. The commodity struggles to get traction this week but in case bears regain control of the market, the price could drop to the demand zone marked by the 61.8% Fibo level (around 850). Source: xStation5

Gold

- Gold rallies along with other safe havens as trade war escalation triggers flight-to-quality flows
- Weakish ISM readings for July weakened USD and raised market odds for more Fed rate cuts
- Outlook for gold remains upbeat as monetary easing all around the world boosts demand for the precious metal
- ETFs continue to increase holdings of gold. Total known holdings are at the highest level since the first half of 2013 (76.364 million tonnes)
- People’s Bank of China increased gold reserves by 9.9 tonnes in July, to a total of 1936,5 tonnes. It was the eighth consecutive month of Chinese gold purchases
- Net speculative positioning for gold surges along with the price
Both ETF holdings and net speculative positioning surged to a multi-year high during the latest rally on the gold market. Source: Bloomberg

Gold market resumed upward move with a significant momentum this week. Blurry outlook for Sino-US trade talks combined with more easing from the major central banks supports prices of precious metals. As there are barely any reasons to expect this rally to end, the price could continue upward move until it reaches supply zone ranging above the $1565 handle. Source: xStation5

Copper

- Global manufacturing activity continues to slide and puts pressure on industrial metal prices
- Copper prices dropped to the lowest level since June 2017
- Industrial metals reacted to significant increase in recessionary risks
- Prolonged weakening of the demand can be spotted in stockpiles data.
- US business sector lobbies authorities not to include copper alloys on the list of the EU tariffs as it would have an adverse impact on the domestic sector
- Net speculative positioning on copper remains close to multi-year lows
- Gold-to-copper ratio at the highest level since 2016 US elections

Continuous price gains on the gold market accompanied by declines on the copper market pushed gold-to-copper ratio (green line on the chart above) to the highest level since November 2016. It means that investors were not so pessimistic about the global economy since Trump was elected. Source: Bloomberg

Escalation of the Sino-US trade war pushed copper prices to the levels not seen since mid-2017. As hard data continues to paint a picture of the struggling global economy, any rebound in the near-term looks questionable. Source: xStation5