Commodity wrap - Oil, Sugar, Soybean, Platinum (27.02.2019)

Oil:

• US oil output has almost hit 12 mbpd (7 mbpd come from shale production), it’s a noteworthy change compared to the levels seen 10 years ago when virtually 100% of oil outturn came from conventional sources

• Trump blames OPEC for high crude prices and calls for higher output

• Saudi Arabia wants to slash its output by 500 kbpd in March and points to a possible extension of the current production cuts; Russia still remains behind the schedule when it comes to oil production cuts

• Venezuela could be forced to cut production due to insufficient storage

• Venezuela’s foreign minister says that a political revamp in the country has come to an end, Guaido is staying in Columbia where he met with US Vice President Pence

• Standard Chartered signals the oil market operates at a 500 kbpd deficit in the first quarter; EIA and OPEC share a different view

EIA does not see any chance that a deficit will occur later this year. However, it does not take into account production cuts from OPEC. Source: EIA

OPEC has lowered its production to the lowest levels since 2015. Nevertheless, we have still high output in the US as well as production in Russia at the levels higher than it has pledged. Source: Bloomberg

Oil prices have recovered some of their falls following a series of comments from Trump. Source: xStation5

Sugar:

• The market operated at a tremendous surplus last year

• The low exchange rate of the Brazilian real has increased competitiveness of Brazilian sugar

• Sugar prices may follow corn and ethanol price movements

• A large increase of ethanol prices in response to a rise in oil prices

• Ethanol prices are hovering around the critical levels which could lead to a sudden slump in demand as well as a rise in sugar output

• CFTC data does not suggest that sugar is overbought

A sharp increase in ethanol prices might be a warning sign for sugar prices. We may experience the similar scenario which took place at the turn of 2015 and 2016. Source: Bloomberg

Sugar prices remain elevated compared to net positioning (ICE). Source: Bloomberg

Soybean:

• Commodity trades in a consolidation ranging 915-930 cents per bushel

• Prices failed to rally when China announced increased purchases of the US soybean

• USDA released aggregated exports data for the past 6 six. Soybean exports to China reached just 3.92 tonnes while markets expected much more

• Inspections remain moderate as it is the case for the early-year

Aggregated data on soybean exports. Source: Bloomberg

Soybean keeps trading in a narrow consolidation range below key resistance level at 930 cents per bushel. Source: xStation5

Platinum:

• Platinum supply should rise to 8.1 million ounces in 2019 while demand could increase from 7.47 million ounces in 2018 to 7.65 million ounces in 2019. Both supply and demand enjoy around 2% annual pace of growth

• Demand from automotive sector is expected to drop 1% in 2019 after declining 7% in 2018. Demand from petroleum and chemical industries continues to be strong

• Norilsk suggest that it is unlikely that carmakers will start using platinum instead of palladium amid high prices of the latter

• Palladium is more resistant to high temperatures than platinum what is desired feature in car engines

• Palladium is extremely overbought by speculants while platinum is not yet extremely oversold

• Shift in investment demand trends may result in a reversal on the platinum market

Platinum demand should experience slight increase this year. Contribution of investment demand should be significant. Source: Platinum Investment

Investment demand for platinum increase by around 400 thousand ounces so far this year. It is much more than estimated by Platinum Investment. Source: Bloomberg

In theory, the upward move on the platinum market is in the middle of potential range. On the other hand, price is testing the potential neckline of the double bottom pattern. 900 USD per ounce handle can be seen as the key resistance level over the short-term. Source: xStation5