Commodity wrap - Oil, gold, sugar, corn (08.06.2021)

Oil:

• The price of WTI crude oil reached $ 70 a barrel, but retreated possibly due to profit taking
• The latest EIA report points to a balanced oil market by 2022 - production is expected to follow rebounding demand
• Crude oil imports by China in May below 9 million bpd, similar to 2019, almost 2 million bpd a day less than a year earlier, when China benefited from very low commodity prices
• China may want to limit price increases by somehow hiding its real demand. Oilprice indicates that in May, China used 280k. bpd from its reserves! Data on current reserve levels are not available, but it is estimated that China could limit its imports for a longer period of time (e.g. until Iran enters the market with much cheaper oil).
• Vitol points out that the problems with stronger production growth in the United States mean that OPEC + is now in almost full control of the crude oil market. Currently, only about half of the drilling rigs in the US are in use compared to the pre-pandemic period
• After the partial restoration of production, OPEC + theoretically still has "approx. 6 million free barrels of oil in its pocket"

The EIA in its latest forecasts indicate that the market should be relatively balanced by the end of 2022. Source: EIA

China's oil imports are significantly lower compared to last year. A further restriction of imports could limit the potential upward movement. Source: GAC, NBS, @energy_blogger

Gold:

• The price of gold reacted to Janet Yellen's comments on US fiscal and monetary policy
• Janet Yellen points out Biden should move faster with his $ 4 trillion spending plan, even if inflation were to remain high next year
• At the same time, he emphasizes that an environment with slightly higher interest rates would be "positive" for the market. However, gold reacted negatively to these words.
• Therefore, the key factor for gold will be the June Fed meeting during which central bank could signal a potential change of its policy (QE limitation, rate hikes - within the forecast period).​​​​​​​

Gold had a weak start of the month due to Yellen's comments and possible moves from the Federal Reserve to curb rising inflation. On the other hand, the move has largely been reversed and the price has returned to $ 1,900 an ounce again, not far from the all-time highs of 2011. A break above this level should be treated as a bullish signal. On the other hand, a break below $1890 an ounce and the 23.6 Fibonacci retracement could be seen as a step towards a larger downward correction. Such a move could also be initiated by a further decline in TNOTE (increase in bond yields). Source: xStation5

Sugar:

• Oil and Brazilian real support sugar prices
• However, sugar has been consolidating recently and cannot break through to the local highs from the first half of May
• The current increase in sugar prices is not only caused by the situation on the crude oil market and the use of sugar for ethanol production, but also by the limitations of the raw material supply for sugar production in Brazil.
• In total, the supply of sugar from Brazil and Thailand will be lower by approx. 15 million tonnes (according to some forecasts), although Fitch expects a significantly smaller drop in production
• Expectations point to a further reduction in inventories worldwide, although historically they will remain very high​​​​​​​

Sugar closing stocks should continue to decline, given the demand and supply forecasts, which are expected to be significantly lower in Brazil and Thailand. Source: Bloomberg

Sugar prices remain high, recently supported by a stronger Brazilian real and high oil prices. It is worth noting, however, that the seasonality indicates a consolidation in the coming weeks. Source: xStation5

Corn:

• The price of corn is moving higher amid continued weakness of the US dollar and higher oil prices
• High sugar and oil prices support corn prices as this commodity is also used to produce ethanol
• On the other hand, there has been a marked reduction in long positions recently, although after the recent positive information, the long side is rebuilding its positions
• The quality of corn and soybean crops in the United States is clearly inferior, which has led to the recent price rebound

​​​​​​​The quality of corn crops has clearly decreased compared to the previous week and is lower than a year ago, which may cause production problems and further upward pressure on price, especially if high imports of this commodity by China are maintained. Source: Bloomberg

After a significant reduction in long positions recently, a slight rebound can be observed. On the other hand, short side positions remain unchanged near extreme lows. Source: Bloomberg