Commodity Wrap - Oil, Natural Gas, Gold, Copper (25.10.2022)

Oil

• US President Biden announced an additional strategic oil reserve release but it did not have an impact on the market

• Biden is also calling on domestic producers to invest in boosting oil production, rather than paying out dividends or conducting share buybacks

• It should be noted, however, that it was Biden administration that trying to significantly limit ability of US companies to invest in US oil market

• Oil market remains in backwardation, signaling that supply remains tight

• On the other hand, oil is heading for the first monthly gains since May! Simultaneously, one should note that most of this month's rebound has been erased

• 2 million barrel OPEC+ output cut goes live in November but real output cut is seen closer to 1 million barrels

• IEA members currently do not consider another coordinated oil release

• Sanctions on Russian oil are set to go live in around 6 weeks

• Apart from that, G7 countries plan to impose price cap on Russian oil, that is expected to be around $60 per barrel

Russian maritime oil trade may drop by at least 1 million barrels starting from December, which may lead to a shock on the oil market. Source: Bloomberg

Oil is heading for the first monthly gain since May. Source: Bloomberg

Natural Gas

• Natural gas prices around the world are dropping due to hotter than expected weather at the beginning of autumn

• Prices in Europe dropped below €100 per MWh due to demand destruction and higher temperatures

• According to IEA chief, we are experiencing a global energy crisis

• IEA chief also says that LNG market will be even tighter next year amid big jump in LNG imports to Europe and potential recovery in Chinese demand

• EU imports of Russian gas dropped to 9% of 2021 levels

• European Union wants to impose price cap on natural gas, Germany no longer opposes the idea

• Russia says that imposing price cap will mean full stop of gas exports to Europe

• The latest data on US natural gas inventories showed fifth weekly increase of more than 100 billion cubic feet in a row

• US natural gas prices recover slightly but the rebound looks to be technical in nature

NATGAS bounces off important technical support. December contract bounces off July lows while November contract off $5 per MMBTu area. Source: xStation5

Gas consumption in EU countries is very low currently - below seasonal patterns. On the other hand, the heating season still has not started yet. Source: Bloomberg

Gold

• Gold makes a technical rebound after painting a double bottom

• In spite of high yields, gold is holding up well. This can be reasoned with growing expectations that Fed may slow tightening process and go for a 50 bp rate hike at December meeting

• The next Fed rate decision will be announced next week!

• Investment gold demand continues to struggle - ETFs are still selling out gold holdings and level of investments is the lowest since the first half of 2020

• Number of open long positions on gold is the lowest since 2019. Number of short positions continue to rise slightly

Investment demand for gold continues to struggle. Source: Bloomberg

Gold price rebound after painting a double bottom. Next week's Fed decision on Wednesday will be key for short-term outlook for gold. Source: xStation5

Copper

• Chinese data came in slightly above expectations - Q3 GDP growth at 3.9% YoY was higher than expected but lower than Chinese government's target

• Government is more reluctant to share data signaling that it may now be more interest in development of society rather than supporting economic growth and international trade

• Yuan continues to weaken, signaling potential further weakness on base metals market

• Chinese copper stockpiles as well as global inventories continue to rebound

• On the other hand, some analysts point to potential macroeconomic issues that mask the tightness of the metals market. Trafigura Group says that deficit on copper market may amount to 350-400 thousand tonnes this year

Problems of the Chinese economy are reflected in the weak yuan, which may further negatively impact base metal prices, including copper. Source: xStation5