Commodity wrap - Oil, Natgas, Gold, Wheat (16.08.2022)

Oil:

• Crude oil price drop at the beginning of the week, as weaker data from China may weigh on demand
• China saw lower dynamics of industrial production, weaker investment in fixed assets and retail sales for July
• Worse data from China was partially caused by the reintroduction of the zero-tolerance Covid policy, which could be of key importance during the autumn / winter period
• The Chinese refining data for July is also not impressive. Processing in July amounted to 12.53 mbd, which is the lowest level since March 2020 and  8.8% lower compared to July 2021
• Saudi Aramco still expects that production will increase to 12 million barrels per day
• At the same time, Saudi Aramco points out that due to potential problems with the lack of access to raw materials during winter, the Arab countries currently cannot throw every possible barrel on the market, but will wait for worse times
• Meanwhile Iran, indicates willingness to sign agreement if the United States considers softening its position on so-called "Red lines"

Crude oil continues its downward sequence and it is possible that the price may break below the recent local lows. If crude oil were to maintain a long-term uptrend (post-covid rebound), the price could drop to USD 85-97 per barrel within the next two weeks. At the same time, it would negate the current growth impulse. Key support is located around $ 86 per barrel and is marked by local highs from October and November 2021. Source: xStation5

Natgas:

• Gas transfers to Europe dropped by 75% y / y. Russia still does not compensate for the lower transfers via NS1
• The price in the United States is reversing amid slightly lower temperatures and higher production
• The market believes that an export terminal in Freeport will be opened in October, which will reduce the supply of gas available locally in the US
• The temperatures are slightly lower, but the power consumption of the air conditioners is still extremely high
• Interestingly, U.S. wind electricity production has decreased by around 25% due to weather factors, which could boost gas consumption
• Inventories rose sharply, however prices remain near $ 9 MMBTUGas stockpiles are still far away from the 5-year average, which may suggest higher demand before the winter period. Source: EIA​​​​​​​

Gas prices are approaching $ 9 MMBTU despite slowing demand. However, the market is very tight and the situation may intensify during the winter season. Source: xStation5

Gold:

• Gold continues to retreat from around $ 1,800 an ounce
• Gold reacts to a clearly stronger dollar, although yields are calm and Wall Street continues to move higher
• The data shows that ETFs are still selling gold
• China's slowdown is also negative for gold as China is now the world's largest consumer
• Nevertheless, a potential slowdown in US interest rate hikes may have positive effects on gold in the longer term
• Fed minutes on Wednesday will give more hints on the rate hikes path prospects in September, although after the recent US CPI reading the market sees less than 50% chances for 75bp hike next month​​​​​​​

ETFs continue to sell gold. Source: gold.org

Breaking above the 50-day average turned out to be unsuccessful. Gold is currently pressured by very strong dollar. Source: xStation5

Wheat:

• Wheat pulls back slightly, despite ongoing export problems from Ukraine or even from Russia
• Ukraine has no export capacity, and in addition, the harvest this year is likely to be half as much as in 2021
• In the US, production prospects for the 22/23 season slightly improved, however the outlook for demand and exports also increased.
• US export prospects have been increased to 825 (+25) million bushels, while closing inventories have been reduced to 610 (-29) million bushels
• Production prospects, consumption and exports have also been raised globally, while reducing the amount of closing inventories
• Closing inventories are to amount to 267.3 million tonnes, lowest level in 6 years​​​​​​​

The price of wheat remains in a consolidation, while corn is facing slight selling pressure. Oil prices are falling, but longer prospects show that supply may not be sufficient to meet demand, even despite the economic slowdown. Source: xStation5