Commodity Wrap - Oil, Natural Gas, Wheat, Silver (12.04.2022)

Oil

• Russia stops releasing data on oil production and exports

• Tanker tracking companies point to a significant increase in Russian exports to India and China

• Economic slowdown in China may lead to a drop in mobility and therefore a drop in oil demand

• Pandemic in China is far from over but some restrictions in Shanghai were eased already

• Chinese oil imports may have dropped to the lowest level in 10 years

• Significant reduction in backwardation on Brent market. Difference between front-month and 12-month forward contract dropped from $25 around 3 weeks ago to $2.50 now

• Goldman Sachs lowered its oil price forecast for the second half of 2022 to $100 per barrel

• Similar price levels were expected before launch of Russian invasion of Ukraine

• United States and its IEA allies will released 240 million barrels of oil from reserves over the next 6 months

• OPEC says that it is impossible to ignore Russian oil in the long-term as daily exports of oil and oil derivatives amount to around 7 million barrels

Russian seaborne oil exports recovered to pre-invasion levels. Source: Bloomberg

Backwardation on the Brent market shrunk significantly, signaling that short-term demand has stabilized. Source: xStation5

Natural Gas

• US natural gas prices jumped above $6.7 per MMBTU with European prices hovering near $30 per MMBTU

• More US gas is directed for exports to European countries

• In spite of the end of heating season in Europe, upward pressure on US natural gas price may remain amid attempts to cut away from Russian gas

• It should be noted that a lot of European countries still plan to use Russian gas during the next heating season

• US natural gas inventories are almost 20% below 5-year average for the period. End of US heating season is expected within days

European natural gas stockpiles started to rebound as the heating season ended. Filing at least 80% of capacity is planned by the end of October. Source: Bloomberg

The nearest resistance to watch on NATGAS can be found in the $7.50 per MMBTU area, where 50% retracement of a major multi-year downward impulse can be found. Traders should keep in mind that price often saw a dynamic drop following such steep rallies in the past. However, expected increased demand for US gas may keep the rally alive. Source: xStation5

Wheat

• Wheat price recovered almost 15% off a local low

• Outlook on global ending stockpiles deteriorated compared to March WASDE report

• Winter wheat in the US is of very poor quality. Also start of the summer season in the country was the worst in at least 10 years

• Share of good and excellent quality wheat increased from 30 to 32% in the past week but remains significantly below 53% seen last year during this period

• Share of terrible quality wheat is at 18%, compared to 6% year ago

WHEAT is testing 38.2% retracement of the last downward wave. Key resistance can be found at 50% retracement, where previous price reactions can also be spotted. However, a potential negative reaction to the upper limit of local geometry may signal a return to downward move. Source: xStation5

Wheat ending stocks are forecasted to be slightly lower around the world. Key WASDE report will be released next month and will show forecasts for the 2022/2023 season. Source: USDE 

SIlver

• Bulls defended 50-period moving average on weekly interval, that coincides with 38.2% retracement

• Big jump in US yields (10-year yield near 2.8%) has limited upward potential for precious metals

• However, further upside on 10-year US yields may be limited given long-term inflation expectations and rate expectations near 2.5%

• Seasonal patterns hint a potential rebound at the beginning of summer

Bulls defended 50-week moving average and a 38.2% retracement of the latest downward impulse. As one can see, silver has been trading sideways since August 2020 with the upper limit being in the $28-30 area. Lower limit can be found in the $21.4-22.3 area. Source: xStation5