Commodity wrap - Oil, gold, silver, corn (09/06/2020)

Oil:

• Along with the rebound in oil prices, US shale activity is slowly recovering
• Part of production in Libya returns, theoretically production can increase by 300-400 thousand over the next few weeks
• Saudi Arabia, Kuwait and the UAE will not introduce additional cuts after the end of June
• Saudi Arabia has drastically increased export prices, prices for Asian countries higher than world benchmarks
• A significant drop in refining margins may herald a decrease in already stifled demand, which may negatively affect prices in the near future
• Goldman Sachs expects Brent crude to decline rapidly to USD 35 per barrel
• Brent oil drops from around 43 USD per barrel below 40 USD

Saudi Arabia's export prices to Asia are even higher than world benchmarks. Source: Bloomberg

The number of oil rigs slows down, while the number of Frac spreads begins to bounce back. This is the effect of higher oil prices. Source: Primary Vision

Gold:

• Gold stops expanding after raising above $ 1,700 per ounce
• Further expansion of monetary policy, the ECB increases the PEPP program by EUR 600 billion (more than expected).
• Meanwhile Fed introduces a new "Main Street Lending Program" tool for companies (deferred interest payments and principal repayments)
• On the other hand, new Fed program and significant improvement in economic data that suggest a V-shaped recovery may cause the Fed to adopt a "wait and see" attitude
• Further expansion on the part of ETFs, on the other hand, reduction of long positions and increase of short positions - net positioning is beginning to indicate that gold prices may fall. In addition, we are seeing a decline in open interest.
• The strengthening of the dollar after the Fed's decision may cause that gold will continue to move in consolidation. Nevertheless, we expect the gold to reach at least USD 1780 per ounce in the longer term

ETFs continue to buy gold, while from the positioning side one can see a negative change for gold - a decrease in long positions and an increase in short positions. Source: xStation5

Gold consolidates close to USD 1,700 per ounce. The key demand zone is located around USD 1680 per ounce, while the target for gold in the perspective of several months is located around the 2012 highs - above USD 1780 per ounce. Source: xStation5

Silver:

• A significant increase in demand for silver from ETFs
• This year, ETF demand increased by almost 150 million ounces.
• Due to ETF demand, the biggest deficit on the market may occur this year
• On the other hand, sharp increase  of industrial metals prices like copper can cause an increase in silver production (silver is mostly mined with copper or gold)
• Silver is preparing to close the divergence with gold. Further weakness of the dollar should help

ETFs have significantly increased the amount of silver they own this year. In addition, long positioning rebounded. Source: Bloomberg

Silver is about to close its divergence with gold. As a result, silver prices could rise to around USD 19 per ounce. In addition, it can be seen that seasonality suggests a further rebound in prices. Source: xStation5

Corn:

• Economic rebound, increasing gasoline demand are positive aspects for corn prices
• The price of corn has reached its seasonal peak (as indicated by the seasonality indicator)
• The seasonal peak should occur in mid-June
• The quality of maize crops is very good, an increase compared to the beginning of the season. Very good corn weather in the United States

Very good corn quality, although slightly lower compared to the same period a year ago. Source: USDA

Corn is approaching the seasonal peak. Further crop quality progression may lead to correction. On the other hand, current corn prices are significantly below production costs without government subsidies. Source: xStation5