Commodity Wrap - Oil, Natural Gas, Gold, Palladium (21.03.2023)

Oil

• Oil plunged significantly amid banking sector turmoil

• There are rumors that financial institutions had to close their open positions on oil in order to shore up liquidity and it has led to a plunge in prices

• Brent and WTI prices are approaching a key support zone marked with local lows from 2021

• Comparative inventories suggest that weakness on the oil market may not be over yet. On the other hand, US stockpiles are not rising as quickly as they used to in the first weeks of a new year

• Goldman Sachs - the biggest oil market bull lowered its end-2023 oil price forecast from $100 to $90 per barrel

• China oil imports continue to struggle, what may hint at domestic stockpiles being withdrawn. On the other hand, offshore oil storage dropped to a relatively low level

Brent tests 200-week moving average, which provided some support in the past. On the other hand, we are currently observing one of the largest corrections on the oil market in the past 5 years (at least in terms of nominal price change). Source: xStation5

US comparative oil inventories suggest that WTI still has some room to drop. However, it should be said that stockpiles are not rising as quickly as they did, which may suggest that the inflection point is near. Source: Bloomberg, XTB

Oil market is in massive backwardation. However, the curve has flattened significantly compared to a week and a month ago, signaling a drop in short-term demand. Source: Bloomberg

Oil price is trading near an important support. CFTC data points to oil being strongly oversold but this data comes from early-March and therefore is lagged. Seasonal patterns suggest that local low is near. Source: xStation5

Natural Gas

• Weather in the United States improves and high temperatures are expected in the coming days

• This means that pressure on natural gas prices may remain as demand is likely to be lower

• Comparative inventories are not pointing to oil being extremely oversold yet

• Long-term and 5-year seasonal patterns suggest that local low may have been reached already. Simultaneously, seasonal pattern suggest that stronger price increase are likely no sooner than in 2-3 weeks

• On the other hand, normalized declines are in-line with long-term seasonal patterns

• Price still trades around 2 standard deviations away from a short-term moving average

Weather in the United States remains warmer, what should allow for further increase in US natural gas stockpiles compared to 5-year average and above last year's levels. Source: Bloomberg

Natural gas prices continue to trade around 2 standard deviations away from a short-term moving average and are slightly oversold when the 5-year average is concerned. Source: Bloomberg, XTB

Comparative inventories are not flashing a "strongly oversold" signal yet. Source: Bloomberg, XTB

Seasonality charts for natural gas. It should be noted that the middle chart in the rightmost column shows that current natural gas price decline is similar to long-term declines. On the other hand, the bottom chart in the leftmost column shows that 5-year and long-term averages are suggesting that prices may catch a bid in the near future. Source: Bloomberg, XTB

Gold

• Gold saw significant reaction to plunge in US yields (10-year yield dropped below 3.5%)

• Nevertheless, US bond prices approached a resistance. The upcoming FOMC rate decision, and more precisely new forecasts, will be key for future moves on gold

• Keeping terminal Fed funds unchanged or hiking it slightly may benefit gold but at the same time, US yields seem overbought in the short-term

• Seasonal patterns point to a possibility of continued gains on the gold market

• Reaction from ETFs to recent price rally on the gold market has been muted

• Lagged CFTC data also shows increased interest from sellers

ETFs purchased a small amount of gold during recent banking sector turmoil. Lagged CFTC data for early-March suggest a significant pick-up in the number of open short positions. Source: Bloomberg

Gold painted a strong technical reversal signal but seasonal patterns suggest that rally may last until mid-May. Source: xStation5

Palladium

• Palladium prices resume drop after a brief recovery

• ETFs increased holdings of palladium by 7.5% year-to-date but it should be noted that market cap of those ETFs is just $0.68 billion, compared to $183 billion market cap of gold ETFs

• It is expected that platinum demand from automotive sector will continue to rise, especially in fuel cell catalytic converters. On the other hand, use of palladium in the automotive sector is much smaller

• Ratio of palladium to platinum prices should move in direction of parity

Source: xStation5