Commodity Wrap - Oil, Soybean, Silver, Natural Gas

Oil

• Compliance with OPEC output cut agreement stood at 200% in the previous month due to attacks on Saudi refineries

• Next OPEC+ meeting will take place at the beginning of December. Group’s spokesman said that further cuts will be discussed at the meeting. However, Russia rules out such a possibility

• OPEC wants all members to be in full compliance with the output cut agreement

• Among countries that fail to comply one can find Iraq, Nigeria, Gabon as well as South Sudan

• Oil markets needs positive news on demand. Signing of Sino-US trade deal could be such a news

• However, the oil market does not seem to believe that such a development is possible anytime near and, in turn, demand concerns mount

OPEC production declined significantly in the previous month due to drone attacks on Saudi refineries. According to the Saudi Ministry, output should stand at 9.8 mbd in October and November. Source: OPEC

Significant divergence between oil and S&P 500 surfaced last week. Wall Street seems to believe that trade deal is within reach while oil market keeps thinking that major global slowdown is coming. Source: xStation5

Soybean

• Hopes of China and the US signing a trade deal caused soybean prices to move to the highest level since mid-2018

• Price breaks above key resistance at 940 cents per bushel

• China vowed to double purchases of the US agricultural products, to the range of $40-50 billion. Looking on soybean purchases alone it would mean an increase from $13 billion to $20-26 billion

• China does not as much soybean as it used to as ASF disease significantly trimmed demand for it and the Asian country is making significant purchases from Brazil

• From a technical point of view, current rally could extend to as high as 990 cents per bushel

• Crop progress data postponed to 15 October due to Columbus Day holiday

• Soybean harvest this season is at its weakest since at least 5 years. Soybean quality sits significantly below the 5-year average

Very poor start to the US soybean harvest. Source: Bloomberg

Looking at historical data, shift from Brazilian purchases to the US purchases was accompanied by price declines. Will the history repeat itself this time as well? Source: Bloomberg

Soybean trades above the key resistance zone. The next place to watch is the 990 cents per bushel area. Source: xStation5

Silver

• Demand for silver from ETF funds as well as speculative demand in the futures market still persist

• Good sentiment regarding international trade lead to a consolidation in precious metals

• A bounce in copper prices should be supportive of silver prices

• Technically silver has bounced back from $17 and has made a correction, the similar case took place at the turn of 2015 and 2016

Silver market has gained more than 20% since the start of the year. Source: Bloomberg

Has silver already ended its correction move? Source: xStation5

Natural gas

• The latest price bounce has taken place earlier than it would stem from a seasonality analysis

• There are no supply disruptions in sight

• Late October has tended to bring a seasonal bounce in the previous years

• A number of longs remains limited

We saw price bounces at the end of October in the past years. Source: Bloomberg

Gas prices in the US keep hovering close to multi-month lows. Source: xStation5