Commodity Wrap - Oil, Gold, Natgas, Corn

Oil

• Oil rebounded earlier this week on hopes of new announcements by Chinese authorities on support for the economy and the still tense situation in the Middle East. 
• China decided to cut borrowing rates (1-year and 5-year) by 25 basis points, which was marginally more than expected. 
• According to Bloomberg calculations, oil demand in China fell nearly 7% y/y to 14.176 million barrels per day. Demand from January to September was down nearly 4% y/y and averaged nearly 14 million barrels. 
• In mid-October, Libyan production recovered to 1.3 million barrels per day
• However, the market does not expect an attack on Iran's oil-related infrastructure after recent reports related to a conversation between the Israeli prime minister and the American president. Indications are that Israel is expected to target military infrastructure
• The Financial Times reports that Saudi Arabia is actually going to abandon its plan to return oil prices to the $100 per barrel level, which is expected to allow production to start returning from early December
• Net positions on Brent Crude are rebounding, while WTI crude shows little interest from buyers

The initial rise due to increased geopolitical tensions has now been almost fully revised downward. Looking at oil's behavior after last October and after this April, one could assume further price declines. Source: Bloomberg Finance LP, XTB

 
The price of oil remains very low, due to a reduction in the geopolitical premium. Moreover, oil is exposed to a rebound in production from OPEC+ in early December. The demand situation remains weak. Source: xStation5

Gold

• The rise in gold prices is related to the strong tension of the situation in the Middle East and the upcoming elections in the United States
• Gold is gaining, even though expectations for interest rate cuts this year have fallen. It is currently pricing in an incomplete two rate cuts by the end of this year
• Gold has already gained more than 33% since the beginning of the year, which would be the strongest annual gain in nearly 50 years, if the increase is maintained through the end of this year
• The rise in gold prices this year is partly justified by the expectation of a drop in interest rates, but these remain strong. The dollar is strong on an annual basis, so most of the increase this year is driven by uncertainty and a desire to divert funds to safe havens
• Speculative positions in gold rebound minimally, purchases by ETFs continue
• Gold, however, is not reacting to the so-called “Trump trade,” which is linked to the potential strengthening of the dollar in the event of a Trump victory. A strong dollar is negative for gold
• At the same time, however, the market is concerned that Trump's tax cuts will lead to an increase in the deficit and further downgrading of the U.S. credit rating, which could be another driver for gold

It is difficult to see any clear trend for gold after the election. However, after both Trump's election in 2016 and Biden's election in 2020, gold lost value. Source: Bloomberg Finance LP

Gold is reaching new historical highs at $2735 per ounce. The next target is, 2770 at the 200% retracement of the large downward wave from 2011-2016. Source: xStation5

Natgas

• Filling of gas storage in Europe is over 95% and growing minimally all the time, which means that the actual heating season has not yet started. Europe again appears secure in terms of gas supply, which should not lead to large gas fluctuations in Europe
• Gas inventories in the US are about 5% above the 5-year average and marginally above last year's levels. Although inventories are approaching these levels, historically this is a large stock. With moderate temperatures during the fall and early winter, there is a chance of a sizable pullback in prices, as there was last year. 
• Maxar Technologies indicates that there is expected to be a marked cooling in the U.S. starting October 26, which is expected to allow prices to recover
• Production earlier this week came in at 102.3 bcfd, down 1.2% y/y. Demand, on the other hand, was 67.8 bcfd, a level 0.8% higher y/y. LNG exports amounted to 12.8 bcfd, a decrease of 2% t/t
• U.S. electricity consumption and thus production is growing, which is a positive factor for NATGAS prices going forward. As of mid-October, production was nearly 7% higher than a year earlier

Gas price rose after rolling over, but stalled around $2.8/MMBTU. Upcoming weather forecast data will be key. It is worth noting that last year, the final adjustment began in early November. Source: xStation5

Corn

• Very poor weather conditions could lead to a significant reduction in China's corn production
• However, prices may be unmoved given the limited demand for agricultural products from China, given the recent economic slump and falling optimism about stimulus measures influence on economy
• China still maintains large corn inventories, which could lead to a reduced demand to import corn from the US. Chinese authorities expect imports of agricultural commodities to decline this season
• A big impact on corn and soybeans could come from the outcome of the U.S. election. Trump's win and imposition of tariffs on Chinese products could lead to a backlash
• The latest weekly export data showed sales of 2.226 million tons, of corn from the 24/25 season, which was more than 8)% higher than previously and above the forecast range between 1.2-2.2 million tons. The largest buyer at 0.9 million tons has no specific destination.

The price of corn is trying to bounce back from reaching its lowest levels since September 12. Positions on corn have rebounded minimally, but remain at negative levels since last June. Seasonality points to a potential rebound over the next week, followed by declines in late October and early November. Source: xStation5