Commodity Wrap - Petróleo, Gás Natural, Cobre e Ouro (12.07.2022)

Oil:

• Crude oil trades around $ 100 per barrel

• Citi in its "recession" forecast indicates that oil could fall to the level of USD 65 per barrel

• At the same time, concerns over covid restrictions emerged not only in China but also in Europe, which puts pressure on oil prices

• JP Morgan points out that oil prices will remain slightly above $ 100 per barrel this year, while next year prices may remain around $ 90 per barrel due to  higher production levels

• Russian court rejects appeals to halt Kazakh oil exports via the Black Sea port, which alleviates concerns over supply

• The G7 countries are considering implementing price cap on Russian oil, which would lower Kremlin's current record revenues

• The US is trying to pressure India and Japan to introduce maximum price levels for Russian oil.

• The United States still believes that Arab countries have the capacity to increase oil production. On the other hand, production across the cartel fell in the previous month, albeit mainly due to lower production in countries such as Libya and Nigeria.

• Saudi Arabia indicates that it is able to increase production to the level of 12 million barrels per day, although so far this has only happened once - in April 2020. Currently, Saudi Arabia produces around 10.5 million bpd

• The number of open positions in Brent crude is the lowest since 2015. In addition, the two largest ETFs experienced a significant capital outflow in recent days, while the two largest ETFs which enable to take short positions recorded significant increase for the second day in a row (the largest since March)

The decrease in the number of open positions indicates a diminishing interest in the oil market. At the same time, it may indicate a very tight physical market, as indicated by a really large backwardation. Source: Bloomberg

OIL.WTI continues its downward correction. Price pulled back after buyers failed to break above $105.00. However, if sellers fail to uphold momentum, price may rebound from the key demand zone around $92-100. Source: xStation5

Natural gas:

• US gas prices bounce back as Texas experiences heat waves which cause a significant increase in the use of electricity mostly by air conditioners

• An electricity grid operator in Texas expects potential power cuts in the near future due to excessive consumption and network overload

• Gazprom cut the transfer of gas to Western Europe via Nord Stream I by 60% in June, and for the next two weeks gas transfer will be completely stopped due to maintenance works

• However, concerns emerged that Russia will not resume transfers to Europe, which may result in a gas shortage in the winter

• Moreover, a large part of German industry uses gas as an energy commodity, and its shortages may cause a decline in economic activity

• Canada will send Germany the turbines needed to restart the gas pipeline, which may prevent Russia from delaying gas transfers

• Warehouses in Europe are filled to over 60% -nearly a 5-year average

• However, if the transfer of gas from Russia to Germany is suspended for a longer period, Europe may not achieve the necessary 90%, which is needed to survive the winter

• It is also worth remembering that the importance of Russia as a gas supplier is significantly diminishing in favor of Norway and the United States, which have significantly increased their exports recently.

Gas transfer to Germany remains stable, but should drop to zero in the near future. Source: Bloomberg

Warehouses in Europe are 60% full. Source: Bloomberg

Due to the high consumption of gas in the United States, inventories are not refilling, which could lead to upward pressures before the start of the heating season. Source: EIA

Gas prices started to rebound, however the seasonality indicates that moderate upward pressure should persist until the beginning of autumn, and then we should see a key upward phase. Of course, low temperatures during winter will negate this scenario. Source: xStation5

Copper

• Concerns over another round of restrictions in China prevent seasonal rebound on metals market from occurring

• Iron ore prices remain under pressure and bad moods extend all across the market

• Copper prices trade at the lowest levels since November 2020, while iron ore still trades slightly positive year-to-date

• Credit impulse in China suggests that the worst may still be ahead of us, although some recovery should occurred over longer horizon

Chinese credit impulse suggests that demand for base metals may remain subdued, especially as concerns mount about a new crisis arriving. Source: Bloomberg, XTB

COPPER approaches an important support in the 7 250 area. We are also observing further depreciation of the yuan against the US dollar. Source: xStation5

Gold

• Gold is trading under pressure amid US dollar strengthening

• Yields stay at elevated levels but below 3%, what in theory should provide support for gold price

• Speculators have a limited interest in gold as picture by the lowest net positioning since 2019

• A $1,675-1,700 area is a key support for gold

• A "death cross" pattern was painted on the gold market. Similar pattern surfaced at the beginning of 2021 and was followed by an almost-$200 plunge. Should the history repeat, gold may move closer to $1,600, where 113% exterior retracement of the latest major upward impulse can be found

Gold dropped below 78.6% retracement. The next important support to watch can be found in the $1,675-1,700. Source: xStation5