Commodity wrap: Oil, Gold, Wheat, Sugar (20.02.2019)

Oil:

• Oil prices hover around their 3-month high, Brent prices move through the important resistance in the form of the lower limit limit of the bullish channel, WTI prices test their 100DMA

• Oil prices rebound thanks to supply factors - lowered exports and production in Venezuela and voluntary output cuts in Saudi Arabia

• Oil is supported by improved market sentiment, rises across stock markets

• Flat oil production in the US

• The latest ICE report shows further rises of longs in crude oil, the similar pattern took place in 2016 when oil reached its long-term trough

• A bounce in prices could be fragile as it’s mainly driven by hopes regarding production cuts and a revival in global trade

• A pick-up in Chinese and Indian oil imports

Long contracts on Brent oil are building up. The similar pattern was visible in 2016 when oil prices reached its long-term trough. Source: Oilytics, ICE

A good beginning of the year in terms of oil imports from China and India. Source: Oilytics, ICE

Oil is breaking its important resistance in the form of the lower bound of the bullish channel. Source: xStation5

Gold:

• Gold prices trade at the highest level since April last year, the price is approaching a key supply zone nearby $1360/1370

• ETF funds have increased their gold holdings

• A strong uptrend in gold prices despite the strong dollar could suggest that fund managers may be sceptical when it comes to the latest improvement in sentiment

• A possible reversal in the US dollar could give rise to further rises in gold prices over the medium- and long-term

• A pullback in gold prices on the cards in the short-term due to a technical resistance

The strong US dollar real exchange rate. The US budget deficit keeps rising. Source: Bloomberg

A possible corrective move could take place in the short-term. However, the longer-term outlook looks rosier. Source: xStation5

Wheat:

• Wheat prices fall to their 4-month low due to the weak demand outlook concerning US grain, keep in mind that the latest data from the USDA turned out to be mixed

• The short-term decline in global wheat demand, the seasonal analysis suggests a possible price rise

• The seasonal pattern points to increased volatility

The outlook for US grains’ exports seems to be quite favourable therefore one may count on some rises in wheat prices. Source: Bloomberg, XTB

Wheat prices are falling as per our previous analysis from the past week. However, we expect a rebound in the medium-term. Source: xStation5

Sugar:

• Sugar output in India is expected to fall to its 3-year low during the 2019/2020 season due to unfavourable weather conditions

• Higher oil prices cause a rise in sugar prices (a majority of Brazilian sugar production is directed to biofuel production)

• Sugar stocks are forecast to reach their record level of 52.85 billion tons, based on it one may suspect that sugar prices may continue falling over the next several months

Sugar global inventories reached their local peaks in 2014 and 2017. After reaching a local peak sugar prices continued falling for some time. Source: Bloomberg, XTB

Sugar prices are trading in the vicinity of the crucial resistance at around the 61.8% retracement of the latest bearish wave. The resistance is underpinned by the local lows from 2017. Source: xStation5