Commodity Wrap - Oil, Natural Gas, Gold, Cotton (22.11.2022)

Oil

• Wall Street Journal reported on Monday that OPEC+ is considering a 500 thousand barrels per day increase in oil production, sending oil price into freefall. WTI briefly traded at the lowest level since January 2022

• However, Saudi Arabia quickly denied that such discussions are ongoing and said that current  OPEC output cut agreement is set to last until end-2023, leading to a complete reversal of earlier losses

• Kuwait, Iraq and United Arab Emirates also confirmed on Tuesday that no such talks are ongoing

• Bloomberg reports that Chinese buyers stopped purchases of Russian crude as they seek more clarity on Western sanctions. EU and US sanctions on Russian oil, including price cap, are set to go live in two weeks

• Russia's Deputy Prime Minister Novak repeated that Russia will not sell oil to countries that implement price cap and will instead redirect supply to other countries or will reduce production

• Bloomberg reports that if EU ambassadors embrace oil price cap plan, G7 nations will unveil exact price cap on Wednesday evening this week

• Shell said that it will reevaluate its planned 25 billion GBP investment in the United Kingdom after it was announced that UK windfall tax on oil and gas companies will be extended

Oil fully recovered from a drop triggered by WSJ report yesterday and tested resistance zone marked with 38.2% retracement of recent downward impulse today. Note that this zone is also strengthened by the upper limit of the Overbalance structure as well as previous price reactions. Source: xStation5

Natural Gas

• US natural gas prices recovered this week and tested $7.00 per MMBTu area on Monday but failed to break above

• Norway said that it will develop a newly discovered gas field in the northern Norwegian Sea, that is estimated to have recoverable reserves of 20 billion cubic meters. Field is expected to become operational in 2026 and produce until 2039

• According to Ifo survey, 75% of German companies managed to lower gas consumption without curbing output in the last half a year

• However, Ifo survey also showed that almost half of German companies (41.4%) is running out of ways to reduce gas consumption without reducing production levels in the next 6 months

• European natural gas inventories are 95% full after the first week of withdrawals

• According to EIA, US natural gas inventories increased by 64 billion cubic feet in the previous week, in-line with expectations. It was the second straight weekly increase of less than 100 bcf as heating season begins

European natural gas inventories are 95% full after the first week of withdrawals as heating season begins. Source: Bloomberg

US natural gas prices (NATGAS) jumped this week and tested 50% retracement of the downward impulse launched in September in the $7.00 area. However, bulls failed to break above and a slight pullback can be observed at press time. Source: xStation5

Gold

• Gold is trading higher today and on its way to snap a 4-day long losing streak

• Weakening of the US dollar allows precious metals to rebound today

• FOMC minutes scheduled for Wednesday, 7:00 pm GMT are a key near-term driver for USD and, in turn, for gold as well

• While policy statement following last FOMC meeting was a rather dovish one, a very hawkish Powell's press conference followed later

• However, some Fed members, like Daly and Mester, said recently that slowing the tempo of rate hikes may be put up for a discussion

• It looks probable that minutes will reinforce overall hawkish message of Fed but will include elements of caution to allow for smaller hikes should incoming data warrant it

• Net speculative positioning on gold jumped as number of short positions dropped sharply

• ETFs continue to sell their gold holdings

Net speculative positioning on gold increased last week as the number of open short positions dropped. ETFs continued to sell their gold holdings. Source: Bloomberg

Gold snaps a 4-day losing streak and trades 0.6% higher so far today. Weaker USD is allowing precious metals to recover. However, near-term moves will depend mostly on tomorrow's FOMC minutes release. A hawkish document could prop up USD and, in turn, push precious metals prices lower. Source: xStation5

Cotton

• Cotton price dropped over 7% during the past 7 days

• Cotton futures dropped 4 cents per pound on ICE exchange yesterday, reaching a daily lower limit, and finished trading 4.8% lower

• Worries over demand in China, world's biggest consumer of cotton, are playing a key role after country's officials continue to stress that Covid-zero policy is here to stay, at least for now

• China has also started to impose more lockdowns to stem local outbreaks and publicly reported the first Covid-related deaths since May

• As for the week ended on November 20, US cotton harvest was 79% completed, up from 71% in previous week and 74% in this period a year ago

• According to Cotton Australia, Australia exported cotton worth A$2.2 billion in the first three months of 2022/2023 season - almost matching exports for the whole 2021/2022 season

COTTON pulled back after a failed attempt of breaking above the downward trendline. Price is trying to recover today but the move higher lacks momentum. Demand over the condition of the Chinese economy is putting a drag on cotton prices and developments in the world's second largest economy are key to watch for the demand outlook for the fiber. Source: xStation5