Commodity wrap - Oil, Wheat, Gold, Soybean

Oil:

• Oil price have performed well during the first 100 days of this year with Brent trading at $70 and WTI at $64 per barrel, the spread between the two benchmarks has narrowed notably

• Both oil grades trade above their respective 200DMAs

• All OPEC countries keep cutting output except for Nigeria

• A production decrease in Venezuela is among the main reasons behind the progressive production cuts within the OPEC cartel

• Saudi Aramco’s bond issuance draws a gargantuan demand with the bid/cover ratio exceeding 10

• Both oil grades trade in backwardation

• The latest STEO report released by the EIA saw a lower world’s demand increase by 50 kbpd do 1.5 mbpd, it also showed US production lowered in recent months for the first time for many months

US oil production has lowered according to the EIA calculations. But the trend is to remain upward and production could even accelerate from June. Source: Oilyytics, EIA

Brent prices have stalled just before the important technical resistance (the 61.8% retracement). The price could be heading toward $76 based on the analysis presented at the chart above. Source: xStation5

Wheat:

• Wheat crops conditions in the US has seen a notable improvement compared to the previous reports

• The latest WASDE report brought a bunch of adverse information for corn (increased sown acreage), the report turned out to be slightly negative for wheat

• The data did not bring largest price moves in major grains though, suggesting the grains may have already bottomed out

The start to the new season for wheat prices has not been good when we factor in some fundamental data. The current situation is very similar to that seen in 2016. Then, we had the sharp rises in May followed by the peak in June and then the price resumed its downtrend. However, possible falls could be contained this time around to 420c per bushel. Wheat prices could perform better at the turn of May-July based on seasonal patterns. Source: Bloomberg

Gold:

• Gold prices have benefited from the USD weakness and come back above $1300

• There are some rumours that new Basel III regulations may lead to a substantial increase in demand for gold (gold could be re-qualified to the Tier1 capital altogether)

• ETFs have just ended the second wave of a gold sell-off, the net speculative positioning remains quite low

ETFs have just ended the second wave of a gold sell-off. Today’s minutes of the FOMC could affect their behaviour. Source: Bloomberg

Soybean:

• Soybean prices have stopped falling, the commodity price finished the last week above 900c per bushel

• The latest WASDE report showed a decline in soybean stocks at the end of the last season, market expectations had pointed to a rise

• Production, yield and exports did not change

• The latest data showed lowered sown acreage which could be tied to further uncertainty with regard to a possible US-China trade deal

• Brazilian soybean prices reman lower than these in the US which limits upside for US soybean to 940/950c per bushel

In general, the latest WASDE report was subtly negative for all grains. Source: Bloomberg

The net speculative positioning has not entered the extreme area yet. However, it needs to be said that a number of shorts is slowly but surely approaching the extreme level. This could be considered as a contrarian buying signal. Source: Bloomberg