Commodity Wrap - Oil, Gold, Corn, Sugar

Oil

• Crude oil gains primarily on easing of concerns over the impact of coronavirus

• Libya suffers temporary but significant production curb. Output in the country stands at 125kb/d against January’s production of 1.2 mb/d

• OPEC does not need to react to supply issues in Libya. However, crude price may pull back once full production is restored

• The United States imposed sanctions on Rosneft for trading with Venezuela. The move may increase demand for the US crude

• Output of the Chinese refineries dropped to the lowest level since 2014 (around 10 mb/d)

• Goldman Sachs expects oil price at $53 in Q1 2020, down from previous $63. The move is reasoned with expected 4 mb/d decline in demand in China

Chinese refineries process the smallest amount of crude since 2014. Goldman Sachs expects more OPEC output cuts in Q2 2020 as a measure of halting sell-off. Source: Goldman Sachs, EIA, OilPrice.com

Crude price is performing similarly to spring 2019. If history was to repeat itself, price could resume rally soon. Source: xStation5

Gold

• Gold breaks above $1600 handle in a continuation of the upward move. The price may be set to rally, just as it did after breaking from consolidation in summer 2019

• Gold gains amid significant stimulus being still offered by central banks as well as lingering concerns over the impact of coronavirus on the global economy 

• Current gains on gold and USD markets are fuelled by similar factors hence typical negative correlation between those assets broke down

• Demand from ETFs increased

ETFs increased their gold holdings recently. Source: Bloomberg

Gold once again breaks above $1600 handle. The nearest resistance zone can be found in the $1630 area. Should the precious metal mimic its performance after a break from consolidation range in summer 2019, the upward move could extend to as high as $1700 handle. Source: xStation5

Corn

• USDA will hold a press conference today during which estimates for the incoming sowing season will be announced

• Estimates compiled by Bloomberg point to the biggest corn acreage in 4 years

• China started accepting applications for corn tariff exemptions as it tries to live up to “Phase One” trade deal import commitments

• Corn price remains locked in a trading range. One cannot rule out a spring bounce occuring on the corn market (it started in early-May last year)

Corn price is locked within a consolidation ranging between 78.6% and 61.8% Fibo levels. It is possible for the commodity price to drop to 360-370 area before a seasonal bounce higher in April-June period. Source: xStation5

Sugar

• Poor supply situation in Thailand fuels price increase on sugar market

• Drought in key production regions may lead to output drop of as much as 50% (most severe drought in 40 years)

• Sugar cane production in Thailand may reach 78-82 million tonnes this year against 130 million tonnes last year

• In spite of an expected strong sugar cane season in Brazil, declining biofuel stocks may increase refinery demand to a detriment of sugar milling

• Sugar cane harvest in Brazil may lead to significant volatility increase in Q2 2020. Data on ethanol production and sugar milling will be key

• Price difference between March and May futures contract increased significantly, pointing to a strong demand increase for sugar

Sugar market is in backwardation. Price difference between March and May futures contracts increased to 60 cents per pound for a brief moment. Source: Bloomberg

Sugar price reacts to resistance at 15.30 handle. Potential range of the current upward impulse may lead the price above 17 handle, especially if production issues persist. Source: xStation5