Commodity wrap - Oil, Soybean, Gold, Copper (30.01.2019)

Oil:

• A rise in active oil rigs in the US points to a continued increase in shale output

• At most ⅓ shale companies in the US experience positive cash flows at the current oil prices, assuming the unchanged production and CAPEX levels

• US sanctions on Venezuela’s oil could reduce the country’s crude production substantially

• The US accounts for 40% of total Venezuela’s oil exports (500/600 kbpd)

• The US is the major supplier of paraffin needed to dilute Venezuela’s oil

• Upbeat forecasts point to a decline in Venezuela’s crude output by 25% (to 900 kbpd)

• Upcoming weeks could bring a notable decrease of US crude stocks due to a lowered supply (Saudi Arabia cuts its crude exports to the US on the back of Venezuela’s sanctions)

A number of US oil rigs has increased recently. On the other hand, a number of completed rigs decreased in December suggesting a slower pace of CAPEX in the shale industry. Source: Bloomberg

The change in comparative stocks does not bode well for crude prices but it still indicates higher prices in the long-term. Source: Bloomberg, XTB

Soybean:

• USDA is expected to resume publishing its reports regarding demand-supply trends in commodities

• African swine fever virus has caused a decline in demand for soybean

• The US has been granted a possibility to export its soybean to produce biofuels in the EU (currently as much as 75% EU soybean imports’ come from the US)

• A price war on the soybean market is on the cards, a noticeable decline of Brazilian soybean prices in response to increased purchases from China

• The latest data concerning grain inspections suggests limited room for a higher demand from countries importing US soybean

The data concerning grain inspections suggests limited room for a higher demand from China or European countries. Source: Bloomberg

The beginning of Chinese purchases of US soybean has increased competitiveness on the market. A notable decline in Brazilian prices (in the $ terms) signals a limited upside for US soybean. Source: Bloomberg

Gold:

• Gold prices move through $1300

• Bulls could eye $1320 and $1370 as their subsequent important levels on horizon

• Gold benefits from the weaker USD ahead of the Fed’s rate decision

• Fed will hold a press conference following each meeting

• Brexit, Venezuela and trade tensions lead to an increase in uncertainty pushing gold prices higher

• ETF’s holdings have reached their highest level since 2013, it suggests a huge rise in an investment demand

ETF’s holdings have reached their highest level since 2013, a clear sign of an investment demand comeback. Source: Bloomberg

Copper:

• The amount of copper inventories remains low

• Volatility on the copper market could depend on revelations from US-China talks

• The Chinese credit impulse still suggests lower copper prices, however, there is a chance to see a short-term rebound over the next 1-2 months

The amount of copper inventories remains surprisingly low. It was also the case until 2014, even so copper prices were falling. Source: Bloomberg

The Chinese credit impulse suggests further declines in copper prices. The similar stories were seen in 2014 and 2015. On the other hand, there is a chance to see a short-term rise. Keep in mind that the credit impulse is a leading indicator. Source: Bloomberg, XTB