Commodity Wrap - Oil, Natural Gas, Copper, Wheat (18.10.2022)

Oil

• US is expected to release more oil from Strategic Petroleum Reserves in order to bring down fuel prices

• It should be noted that midterms elections will be held on November 8, 2022 and until then US authorities may double their efforts to combat high prices

• Moreover, Bloomberg suggests that new releases will be extension of the current programme, rather than a new one

• Biden administration is reportedly also considering partial limit of fuel exports, what would lower prices at home but may lead to prices increase in Europe and Asia

• It should be noted that OPEC+ will cut current output goal by 2 million barrels per day in 2 weeks (real reduction of around 1 million bpd)

• Additionally, oil traders should also keep in mind that embargo on Russian oil will go live soon

• On the other hand, Chinese zero-Covid policy may lower oil demand and prices as well as Zhengzhou city complex is expected to be locked down soon 

• However, net speculative positioning on oil is increasing

Net speculative positioning on oil climbed to the highest level since July. Source: Bloomberg

$90-92 per barrel area is a key to maintaining a potential bullish trend reversal. Source: xStation5

Natural Gas

• Natural gas prices broke below a key $6.00 - 6.30 support and moved below 61.8% retracement of this year's upward impulse

• US natural gas inventories increased by more than 100 bcf in each of the past 4 weeks

• US natural gas inventories are currently sitting just 5% lower than 5-year average

• It should be noted that US Freeport export LNG terminal will resume operations in November, what should lower inflow into US natural gas systems

• Windy weather in the United States lowered demand for electricity generated by gas-powered power plants

• Seasonal patterns point to resumption of the upward move in the near-term but those patterns are driven mostly by the 2 previous years that saw big price increases

US natural gas inventory builds exceeded 100 billion cubic feet in recent weeks. Source: Bloomberg

Natural gas price dropped below 61.8% retracement of this year's upward impulse. Key support for natural gas can be found in the $5 per MMBTu area. However, a $5.30 area should also be watched closely as it marks the range of the head and shoulders pattern. Source: xStation5

Copper

• China delays release of Q3 GDP data until after Communist Party National Congress ends

• Increase in the number of new Covid cases in China undermine government's GDP projections

• Yuan is weakening against US dollar - current situation starts to resemble the one from 2018 when reaction on copper lagged weakening of CNY

• Copper stockpiles start to rebound in 2014, what may act as a bearish driver for copper prices

Copper inventories in China and globally start to rebound, similar to the situation from 2014. Source: Bloomberg

Yuan weakness may drive further drop in copper prices. On the other hand, seasonal patterns suggest that local low is near. Source: xStation5

Wheat

• Wheat price experience a 10% drop and plunged below the lower limit of the upward channel

• Seasonal patterns point to a potential rebound in the coming days

• The latest WASDE report showed a lower than expected end-of-season stockpiles, lower production and also lower exports outlook

• Drop in prices is reasoned with acceleration of grain exports out of Ukraine - it should be noted that agreement with Russia on grain exports will remain in effect for only a month more

• United Nations say that talks on deal extension are ongoing

• Ukrainian agriculture ministry says that 61% of planned acreage was planted with wheat

Wheat prices continue to drop amid increase in wheat and other grain exports from Ukraine. Nevertheless, uncertainty may see prices drop towards 800-820 cents per bushel in the coming weeks. Source: xStation5