Commodity Wrap - Oil, Copper, Wheat, Gold (17.05.2022)

Oil

• It is estimated that OPEC + is not able to deliver around 2.5-3.0 million barrels per day, despite an increase in crude oil production by 400k barrels per day every month. This is mainly related to the countries excluded from the agreement, as well as to those having problems with restoring production

• The price of oil remains high, despite the lack of new information on a potential embargo on Russian oil imports

• US demand looks strong ahead of the summer season, with gasoline stockpiles remaining below the 5-year average

• Demand in China is also likely to rebound, which may result in a temporary improvement as the restrictions are lifted. The use of refining capacity in the Shandong area increased to 55%

Low US gasoline inventories. Source: Bloomberg

Processing capacity at private refineries in China is increasing. Source: Bloomberg

WTI crude oil continues its rebound, the nearest target for the bulls is located around $115.00. On the other hand, the next short-term support can be found at $ 107, followed by 23.6% Fibonacci retracement at $100.00. Source: xStation5

Copper

• Copper price tested $9,000 area amid signs of economic slowdown in China

• Area was defended and markets hopes for recovery amid gradual lifting of restrictions in Chinese cities

• Release of Chinese PMIs for May may make the outlook more clear

• Chinese credit impulse remains negative. Credit peak from 18 months ago suggests that copper prices may be heading for a big drop

• Copper-to-gold ratio consolidated. Situation may suggest that US yields should pull back soon. If such a development is driven by demand for safe haven assets, copper prices may come under pressure

Chinese credit impulse starts to rebound but still remains negative. Source: Bloomberg, XTB

Copper-to-gold ratio consolidates, which may suggest that recovery is coming to an end. Source: Bloomberg

Wheat

• Wheat prices rebound as crop quality in the United States continues to deteriorate

• Share of good and excellent quality winter wheat dropped to 27%

• Ukraine continues to struggle with grain exports. It is also expected that harvest in the country may be 40-50% lower this year

• Winter wheat harvest season begins in June and should last until mid-August

• US wheat exports is at the lowest levels in history, highlighting tight supply. United States may be unable to offset loss of global supply resulting from war in Ukraine

Quality of US winter wheat crop near lowest levels in history. Source: Bloomberg

Wheat price made two bullish price gaps that have been more or less filled already. Demand reactions can be spotted in the 1200 cents per bushel area. Should quality of crop continue to deteriorate, a move back towards all-time highs in the 1,340 cents per bushel area cannot be ruled out. Source: xStation5

Gold:

• Gold recovers amid pull back in yields and weakening of US dollar. Weak US dollar plays a key role in the current gold market rebound

• ETFs have been selling gold for 8 days in a row, signaling at potential weakening of investment demand after a very strong Q1

• Gold defended $1,800 per ounce support. However, key support can be found lower and is marked with 38.2% retracement in the $1,700 area

• We may be experiencing a potential low in US bond prices. Whether it last or not will depend on inflation expectations that will influence Fed decisions

A number of open long positions on gold has been reduced significantly. ETFs have also been net sellers of gold in recent days. Source: Bloomberg

Gold price reacted to the $1,800 area as US bond prices may have bottomed out. Source: xStation5