Commodity Wrap - Oil, Gold, Copper, Natural Gas (31.10.2023)

Oil

• Oil prices pulled back at the beginning of a new week
• Israel intensified ground operations in the Gaza Strip but as the conflict did not escalate beyond borders, a sigh of relief can be spotted on the markets
• As long as the Israel-Hamas war is limited to Israel and Gaza Strip, it's impact on the global oil market is negligent
• World Bank expects oil prices to average $90 per barrel in Q4 2023 and to average $81 per barrel in 2024 amid slowing global growth
• World Bank sees oil price rising to $140-157 per barrel in Q4 2023 in a worst case Middle East escalation (impact similar to 1973 oil embargo)
• According to the World Bank, the impact in a medium disruption scenario could be equal to the 2003 Iraq War and may drive oil prices to $109-121 per barrel in Q4 2023. Small disruption scenario is seen lifting oil prices to $93-102 per barrel in Q4 2023
• Civil Aviation Administration of China said that number of domestic flights will increase to 34% above pre-pandemic levels
• Citi says that there is a geopolitical premium in oil prices and that the physical oil market is much weaker than priced in currently

WTI (OIL.WTI) pulled back at the beginning of a new week and is once again testing support zone in the $83 per barrel area, marked with 38.2% retracement of the upward move launched in early-May 2023. A break below this area would pave the way for a drop towards the 50% retracement in the $79.25 zone. Source: xStation5

Gold

• Gold climbed above the $2,000 per ounce level on Friday for the first time since mid-May 2023
• Precious metals look past pick-up in yields with moves being dominated by safe haven flows
• Safe haven flows can be seen especially ahead of the weekend with gold trading higher on each of the past three Friday since Israel-Hamas war broke out at the beginning of October
• Bank of Japan failed to delivered onto hawkish expectations and now attention shifts to FOMC (Wednesday, 6:00 pm GMT) and Bank of England (Thursday, 12:00 pm GMT)
• While neither FOMC, nor Bank of England is expected to hike rates this week, a dovish guidance could provide a lift for price of gold as well as other precious metals

GOLD climbed above $2,000 per ounce last week, for the first time since mid-May 2023. Precious metals gain in spite of an increase in bond yields. A dovish message from major central banks this week (FOMC and BoE) could provide fuel for a more sustained break above this key psychological area. Source: xStation5

Copper

• Copper prices climbed above $8,000 per tonne but has struggled to move higher further
• Profits of Chinese industrial companies increase for the second month in a row in September
• Chinese manufacturing PMI index dropped from 50.2 in September to 49.5 in October (exp. 50.2). Services index dropped from 51.7 to 50.6 (exp. 51.8)
• Chinese PMI data showed new export and imports order contracting for the eight month in a row
• Chinese authorities approved issuance of bonds worth trillion yuan to reform disaster-hit areas, which is likely to included big construction spending
• Inventories of copper at Shanghai Futures Exchange dropped to the lowest level since the beginning of February 2023

COPPER bounced off the $7,850 area last week and moved back above the $8,000 mark on the back of Chinese stimulus hopes. However, an attempt to break above the $8,200 resistance zone turned out to be a failure and a long upper wick of yesterday's candlestick suggests that there is a strong bear camp in the area. Source: xStation5

Natural Gas

• Contract rollover added around $0.35 per MMBTu to US natural gas price (NATGAS)
• US natural gas prices climbed to the highest level since mid-January 2023 following the rollover
• According to LSEG data, average output in US Lower 48 states increased from 102.6 billion cubic feet per day to 104.1 billion cubic feet per day
• New weather forecasts suggest that temperatures in the United States in the first half of November should be 'near-normal'. That's compared to a previous forecast of 'below-normal' temperatures

NATGAS climbed to the highest level since mid-January 2023, following contract rollover at the end of the previous week. However, part of those gains was erased yesterday as warmer weather forecasts exerted pressure on prices. Nevertheless, bulls are regaining control over the market today with natural gas prices moving back above $3.45 per MMBTu. Source: xStation5