Commodity Wrap - Oil, Natgas, Silver, Corn (14.01.2025)

Oil

Oil rose sharply after new US sanctions on Russia. Those are the latest sanctions:

• Ban on oil services: A ban on U.S. oil services to entities located in the Russian Federation, cutting Russia off from U.S. services related to the extraction and production of oil and other petroleum products.
• Sanctions on Russian oil giants: The imposition of sanctions on two major Russian oil companies: Gazprom Neft and Surgutneftegaz. Both companies exported about 1 million brk per day in the first 10 months of 2024
• Sanctions on offshore oil transport: 183 vessels, mostly tankers, included in the so-called “shadow fleet,” were sanctioned, as well as tankers owned by Russian operators. Some of these ships transported not only Russian but also Iranian sanctioned oil. The sanctions also include two Russian insurance companies, Ingosstrakh Insurance Company and Alfastrakhovanie Group.
• Sanctions on oil traders: Sanctions on Russian oil traders, often registered in risky jurisdictions, with unclear corporate structure and ties to Russia.
• Sanctions on oil industry service providers and Russian officials: Sanctions on more than 30 Russian companies providing services to the oil industry, as well as on more than a dozen top Russian officials and directors from the energy sector, including CEOs of several Russian oil producers.

According to Rystad Energy's calculations, the latest sanctions from the US could reduce Russia's exports by more than 1 million barrels per day. However, the short duration of the current administration means that the real impact of the current measures will be negligible

• The supply shock in the oil market could last several weeks. It is worth remembering that Russian oil is still attractive to many buyers due to its lower price than the current market price
• Rystad Energy expects prices in the $80/barrel range with a possible breach of the $90/barrel price for Brent oil
• Goldman Sachs expects a maximum price of $85 per barrel
• Russia's exports fell by nearly 200,000 brk per day in the first week of January, although this was not related to sanctions
• Mike Walz, the incoming head of national security affairs in the U.S. administration, wants to push hard on Iran to minimize the country's oil revenues. At this point, Iran is officially responsible for about 1.5 million brk per day of exports
• According to preliminary data for the full year 2024, China imported 2% less oil than in 2023. China is now the world's largest oil importer

The price of WTI crude oil is rising almost to $80 per barrel, spurring gasoline prices on the exchange to rise above 210 cents per gallon. Meanwhile, the average retail price of gasoline has stabilized at $3 per gallon. However, given the delayed response time, a potential increase in retail prices as high as $3.2 per gallon can be expected. Source: Bloomberg Finance LP, XTB

We have been seeing clear increases in long positions on Brent crude for quite some time, although at the same time, looking even at the last 4 years, oil does not yet appear to be extremely overbought. Source: Bloomberg Finance LP, XTB

Brent crude oil has crossed the 250-session average and the $80 per barrel level. It is worth noting that there could potentially be a break of the 100-period average through the 50-period average from below. The last two such situations occurred in August 2023 and March 2024. In the first case, there was a momentary correction, but later a continuation of the upward trend. In the second case, after a moment of consolidation, there was a strong upward breakout. Source: xStation5

NATGAS

• Gas prices tested the level of $4/MMBTU at the opening of the week in the face of changes in weather forecasts in the near term
• The 6-10 day outlook is expected to bring significant cooling in central states in the US, which are key in terms of heating
• The 2-week outlook indicates that temperatures are expected to be lower, but not to deviate extremely from averages
• Seasonal maps, however, indicate slightly higher-than-standard temperatures in the southern states, which may mean that the temperature shock may not last too long
• Maxar Technologies indicates that there is expected to be significant warming in the U.S. at the end of January, which could change the demand situation in the gas market
• On Monday, gas production came in at 103.2 bcfd, which was 3.5% higher year-on-year
• US gas demand was 115.5 bcfd on Monday, which was less than 1% higher than a year ago
• LNG exports were less than 14 bcfd, down 6% from the previous week
• Current data show that gas demand has declined slightly compared to the strong consumption in late December and early January. On the other hand, weather data for next week show the possibility of a return of sizable demand

The report on U.S. gas inventories for the previous week, which will be released this Thursday, could potentially show a drop in inventories as low as 200 bcf. The previous report showed a drop in inventories of just 40 bcf. 

The inventory change report for last week should bring a drop in inventories of as much as 200 bcf or more. The situation for the current week also looks similar, with increased gas consumption earlier this week. Source: Bloomberg Finance LP, XTB

Gas consumption has risen again and remains at the upper end of its 5-year range. Source: Bloomberg Finance LP, XTB

NATGAS scores a strong correction after opening near $4.25/MMBTU earlier this week. The decline since the opening is already more than 12%. Key support for the price is located between $3.5-3.6 USD/MMBTU. Source: xStation5

Silver

The powerful rise in US yields in anticipation of keeping interest rates unchanged is finally having a negative impact on bullion prices this week. Gold and silver are retreating
Silver falls below $30 an ounce, while key technical supports in the form of the 50.0 abolition of the recent 2024 all-time high wave and the 50-week average have been maintained
From a bullion perspective, upcoming inflation data will be key. A further rise in inflation could be taken as a harbinger of higher interest rates than previously expected
Silver has been oversold by speculators recently. Nevertheless, it is still short of the average level of net positions
The gold-to-silver price ratio is back to 90, which means that silver appears to be the current attraction if the upward trend in the bullion market continues. The 10-year moving average is at 80

Seasonality does not suggest big changes at the beginning of the year. However, there should be a significant increase in volatility over the next 2-3 weeks, as suggested by the 5-year highs and price declines. Source: Bloomberg Finance LP, XTB

The gold-silver price ratio remains high, which could mean attractive prices for silver (although it could also indicate a slight overvaluation of gold). Source: Bloomberg Finance LP, XTB

There has been a marked increase in short positions in silver. Nevertheless, it is still far from the average positioning last seen in early 2024. Source: Bloomberg Finance LP, XTB

Silver is under pressure from rising yields and is falling below $30 per ounce. Source: xStation5

CORN

• Corn starts the new week with a continuation of the increases that began at the end of the previous week following the release of the USDA's 2024 production report
• The report showed a sharp drop in yields at 179.3 bushels per acre, a level well below expectations and 3.8 bushels per acre lower than for the November report
• Thus, production for 2024 was estimated at 14.867 billion bushels, 276 million bushels lower than the earlier estimate
• Ending stocks also fell quite sharply to 1.54 billion bushels
• The price is now testing the local peaks of mid-2024, which were also the peaks of the previous year. 
• In the event of a negative production outlook, space opens up to test levels of 500 cents per bushel. Such levels were last seen in the market in October 2023
• Net positions of speculators in the market have recently increased to the highest level since November 2022. At the same time, the overbought nature of this market is also not seen
• The rise in corn prices is also positively influenced by the recent rise in oil prices, which may increase demand for ethanol
• Potential concerns regarding further increases in corn prices above 500 cents per bushel could be increased planting plans for 2025 and trade uncertainty regarding the upcoming Trump presidency
• Corn production in South America will also be an important factor worth watching. A potential El Nino could cause production problems in the lower hemisphere

US ending stocks fell to just 1.54 billion bushels. A drop to 1.68 billion bushels from 1.738 billion bushels was expected. Source: Bloomberg Finance LP

Prices scored strong gains at the turn of the week, testing local peaks in mid-2024. The increases are motivated by lower-than-expected production and rising oil prices. Source: xStation5