Commodity Wrap - Oil, Natural Gas, Gold, Soybean (04.07.2023)

Oil

• Oil reacted strongly on the first trading day of July following information indicating additional supply restrictions from the two largest producers in OPEC+

• Saudi Arabia is cutting production from July 1st and additionally extending an additional cut of 1 million barrels per day into August

• Russia indicates its intention to reduce exports by 500,000 barrels per day starting in August, aiming to decrease the available supply from OPEC+

• However, the market has doubts about the real impact of Russia's cuts, as it previously believed that additional cuts from Saudi Arabia would be extended

• The market expects Saudi Arabia to decide on extending its cuts, which could also be a negative factor considering the reasons behind such a decision. If the basis is weak global demand rather than a desire to maintain higher prices, oil may remain at lower levels

• Let's remember that Goldman Sachs expects a price of $85 per barrel of Brent by the end of the year, while JP Morgan indicates $80 per barrel by the end of this year

Brent (OIL) is recovering from yesterday's drop but trades near a key resistance in the $78.50 area. Source: xStation5

Even in spite of recent gains, oil has been one of the worst performing commodities so far this year and over the last 12 months. Source: xStation, XTB

Natural Gas

• Gas is holding important support around $2.6 per MMBTU, which also coincides with the lower limit of the rollover gap

• Seasonality indicates that gas has already entered a period of growth, which should last at least until mid-August

• On the other hand, comparative inventories continue to rise, although at a moderate pace

• At the same time, there is a significant ongoing decline in the number of drilling rigs, which can be compared to the situation in 2020. However, production remains above 100 bcf/d

• Weather forecasts for the 6-10 day and 8-14 day outlook indicate very high temperatures in Texas, but slightly less extreme temperatures in California

Extreme drop in number of gas drilling rigs in the US suggests that output of the commodity may start to drop within few to dozen or so months. Source: Bloomberg, XTB

Comparative inventories continue to rise which is related to a relatively small consumption of gas in spite of high temperatures and amid a very high output. Source: Bloomberg, XTB

Temperatures in the southern part of the United States are expected to be extremely high but California is expected to see slightly lower temperatures. Source: NOAA

NATGAS continues to trades above an important support and seasonal patterns signal that price may increase until mid-August. Source: xStation5

Gold

• The price of gold remains under pressure due to very high yields in the US

• At the same time, the yields on 2-year bonds are rising much more strongly than on 10-year bonds, resulting in a decline in the 2y10y spread to -110 basis points during Monday's session

• The lack of a rate hike by the RBA may suggest that if the US labor market data and inflation turn out weak, there is a chance of keeping interest rates unchanged during the July meeting

• The US ISM for the manufacturing sector is at a very low level of 46 points, and additionally, the labor market and prices are also assessed below 50 points

• ETFs are selling off gold, and a similar situation can be seen in futures contracts, where speculators have also started reducing long positions in the commodity

Gold continues to trade under pressure amid rising US yields. Source: Bloomberg, XTB

ETFs are selling out gold after a few months of increases. Source: Bloomberg, XTB

Traders should keep in mind that there is a number of events in July that may move gold markets. Currently, technical setup suggests that price may drop to as low as $1,700-1,800 per ounce after painting a triple top. Source: xStation5

Soybean

• The significant decrease in planted soybean acreage in the US in favor of corn and wheat has led to a clear increase in soybean prices

• Furthermore, the recent strengthening of the Brazilian real has increased the competitiveness of US soybeans

• However, the gains in soybeans have been heavily limited by data showing that the percentage of crops in good condition has increased from 14% to 24% in 18 key producing states

• Today, the soybean market is closed due to Independence Day celebrations

Planted soybean acreage is much smaller than was expected. Source: Bloomberg

SOYBEAN rallied on Monday but has erased most of the gains. Seasonal patterns suggest that period of strong gains may begin in mid-August. Moreover, a significant  divergence with CORN market can be observed. Source: xStation5