Commodity Wrap - Oil, Natural Gas, Gold, Cocoa (02.08.2022)

Oil

• Oil demand sits at 96% of 2019 levels according to JODI data

• JODI and IEF data hints that demand for fuels (in 40 countries with highest demand) is higher than in the previous year but is yet to return to pre-pandemic levels. Fuel demand trend suggests that consumption may drop below 2021 levels in the coming months

• BP and Shell reported superb financial results for Q2 2022. Shell reported record profit of $11.5 billion while BP reported profit at $8 billion - three times higher than a year ago

• Chances of reaching a nuclear deal with Iran are diminishing. United States moved to sanction China and UAE companies that trade in Iranian crude

• Saudi Arabia oil exports reached a 2-year high and sit above 7.5 million barrels per day. Moreover, production in the country may reach around 11 mbpd soon

• It is expected that Saudi production may exceed 11 million barrels per day following OPEC+ meeting scheduled for August 3-4, 2022

• A strong and clear declaration to increase output is not expected, given the deteriorating situation in the global economy. Moreover, there is little spare production capacity in most OPEC+ countries

• OPEC+ is currently 300% in compliance with its output cuts, meaning that shortage in OPEC+ production is around 1-2 mbpd

• According to IEF, demand recovered to pre-pandemic levels but oil production is yet to recover. OPEC most likely will not change its policy to support higher production

• OPEC should remember that it needs healthy economy more than high oil prices

Oil demand is close to 2019 levels. Source: JODI, IEF

Fuel demand is above 2021 levels but still short of pre-pandemic levels. Source: JODI, IEF

Saudi Arabia exports rebounded strongly compared to June. More oil means more pressure on prices but traders should keep in mind that the market is tight. Source: Bloomberg

An inverse head and shoulders pattern was painted on the Brent chart (OIL). Oil is trading under pressure amid a poorer outlook for the global economy. It should be noted that the RSI at H4 interval sits just a touch above oversold levels. Source: xStation5

Natural Gas

• Russia says that it does not have capability to repair Nord Stream 1 turbines, suggesting that a complete halt to flows may occurred ahead of winter season

• A drop in Nord Stream 1 flows during previous maintenance was offset by increased flows via Jamal pipeline and southern pipelines running through Ukraine. Flows via Jamal pipeline were halted already while flows via southern pipelines continue to drop

• Russian natural gas production dropped 12% in the January-July period, to 262.4 billion cubic meters. Gas flows to non-CIS countries dropped 35% to 75.3 bcm during the same period

• US natural gas prices pull back to $9 per MMBTU amid modest drop in temperatures

• The upcoming report on US natural gas storage will likely confirm a small build. Should temperatures return to normal levels for the period, a pullback towards $6-7 per MMBTU may be on the cards ahead of potential seasonal rally in September-November period

Natural gas inventories distance away from the 5-year average, what should maintain upward pressure on prices. On the other hand, the temperature peak may be already behind us. Source: EIA

Forecasts for the coming 14 days hint at slightly lower temperatures than in July. Temperatures are expected to remain high throughout August but forecasts for autumn hint that the heating season may begin later than usual. Source: NOAA

Gold:

• At the end of July we could observe recovery in the market, which gives a chance for the first monthly rebound in 4 months

• TNOTE is moving higher, EURUSD still remains low, but there are chances for a stronger rebound

• Potential V-shape recovery pattern may be forming on  the daily chart, which could push the price towards $1800 in the coming days

• On the other hand, in January 2021, after the death cross formation occurred, the first bottom was formed after 22 days and the second one after 1.5 months.

• Currently first bottom formed after 19 days, if the situation were to repeat itself, the second bottom should appear around mid-August

• However, gold is heavily sold off by speculators

Monthly chart points to potential recovery move. Source: xStation5

On the D1 chart, one can observe a potential V-shape recovery move and a possible negation of the death cross formation. Source: xStation5

Sellers are strongly increasing their exposure on contracts, despite  the recent upward correction, which may put a question mark over the sustainability of the current recovery. Source: Bloomberg

Cocoa:

• A strong pound increases the potential for recovery move

• On the other hand, a potential global recession would hurt cocoa demand

• However, rising volume of air travel may increase the demand for chocolate products (a large proportion of chocolate products are sold at airports!)

• Short positions are rising to historic highs, which may be treated as contrarian signal

• Data on cocoa processing for Q2 from Asia and Europe turned out to be better than expected and showed  increase compared to 2021

The cocoa price may be preparing for a bigger upward move, just like at the turn of July and August 2021 (breaking the upper limit of the downward channel). At that time, positioning also reached a local low. Source: xStation5

Number of short positions almost reached an all-time high, suggesting a possible contrarian signal. Source: Bloomberg