Commodity Wrap - Oil, Soybean, Natural Gas, Gold

Oil

• Oil trades mixed amid renewed surge in coronavirus cases

• Decisions on new lockdowns could be a big market mover of oil

• New US stimulus proposal, including second round of stimulus checks, could prop up demand for oil and gasoline

• Oil industry in Libya is slowly starting to reopen after being shut since January on the back of civil war and coronavirus pandemic. Oil production in the country jumped from 90k to 250k barrels per day

• Libya's return combined with planned OPEC+ supply increase at the beginning of 2021 could weigh on oil prices

• Vitol, the biggest independent energy trader, sees little room for oil price gains in Q4 as new coronavirus restrictions slow demand recovery

• G20 energy ministers said that economic stimulus remains crucial for continued recovery on the oil market

Number of short positions on WTI oil has been reduced last week but prices have barely moved. Market is kept in check by concerns over the impact of new Covid-19 restrictions on oil market recovery. Source: Bloomberg

Oil inventories have been declining recently in line with seasonal trends. However, the level of inventories remains above average from the past few years. Moreover, stocks should start to rise once again in October and it could exert additional pressure on prices. Source: Bloomberg

OIL.WTI pulled back from the upper limit of a symmetrical triangle pattern. Demand outlook became uncertainty as more and more countries start to consider reimposing Covid-19 restrictions. Nevertheless, a short-term sequence of higher lows and highs could hint at bulls regaining advantage. Source: xStation5

Soybean

• Soybean price dropped below $10 a bushel after a week-long downward move

• 20% of US crop harvested compared to 6% last week

• Expectations of solid US crop are driving prices lower

• Chinese hog and processing industries continue to show strong demand for soybean

• Dry weather and forecasted lack of rainfall in South America may impact crop in Argentina and Brazil

• While China is making significant purchases of the US farm products, it looks unlikely that it will comply with quotas agreed on in US-China "Phase One" trade deal

While China has accelerated purchases of the US products recently, it looks highly uncertain whether Phase One target will be met this year. China has fulfilled around 33% of its full year's commitments by the end of August. Source: Bloomberg

Latest rally on the soybean market has been accompanied by a significant jump in the number of open long positions. However, the commodity looks to be strongly overbought with a net speculative position at the highest level since Q2 2018. Source: Bloomberg

Ongoing downward move brought soybean price below the lower limit of the market geometry. Should the move continue, important support zone can be found at 38.2% retracement and local peaks from late-2019. Source: xStation5

Natural Gas

• Price advance halted near $2.90 per mmbtu

• Natural gas price began to decline on fresh weather forecasts

• Warmer weather expected in the first half of October in the western part of the United States

• Gas prices may remain under pressure as European storage facilities are said to be almost full

• New coronavirus lockdowns could push back demand recovery into mid-2021

Abundant supply in Europe and warmer weather forecasts in the United States have halted recent rally on the natural gas market. Extremely high net position and extremely low short position could be read as a contrarian signal. Source: Bloomberg

Gold

• Hopes of new stimulus in the United States and Europe are supporting precious metals prices this week

• House Speaker Pelosi and Treasury Secretary Mnuchin will hold talks over new $2.2 trillion deal proposal that is said to be compromise between what Democrats and Republicans wanted

• Christine Lagarde said the European Central Bank is ready to provide more monetary stimulus should the situation require it

• NFP report for September (Friday, 1:30 pm BST) will be watched closely as it will be the last one ahead of the US presidential elections scheduled for November 3

• Gold and other precious metals may become more active overnight as Trump and Biden will face each other in the first US presidential debate

• Recent USD strength has hurt precious metals but momentum on the greenback market seems to be fading. Accommodative policy from Fed should remain supportive for precious metals

• ETF holdings are on track to mark 10th consecutive month of increases

In spite of recent sell-off on the precious metals market, total ETF gold holdings remain near record high. Net speculative positioning dropped along with decline in long position and increase in short positions. Source: Bloomberg

Gold price drop was triggered by USD strengthening (USDIDX, inverted yellow). However, as upward momentum on the USD market began to fade, precious metals started to regain their shine. Gold and Treasury market (blue) decoupled recently. Source: xStation5