Commodities Weekly: Oil at six-month high as sanction waivers to end

Crude oil is the mover of the week on supply-side concerns while gold is suffering from buoyant risk appetite. Agricultural commodities remain under pressure amid ample supplies.

Energy

CRUDE OIL surged to the highest since October 31 yesterday as US President Trump announced that the waivers on Iran sanctions granted to eight oil-importing countries would cease when they expire early next month. Yesterday’s rally of more than 2.5% was the biggest one-day move since January 9. Prices are now comfortably above the 61.8% Fibonacci retracement of the October-December decline at $63.89. The 78.6% retracement of the same drop is at $69.75.

According to Reuters, Saudi Arabia has announced it is ready to increase production to ease the shortfall once the waivers end. Higher oil prices has had an impact on the heavy oil importers in Asia, with their currencies and stock markets weakening (India, Japan, China etc.) while producers such as Malaysia and Indonesia have seen their currencies benefit.

Ahead of yesterday’s rally, speculative investors trimmed their net long oil futures positions for the first time in nine weeks up to April 16. The Brent/WTI spread has widened to almost nine points, the widest in three weeks.

WTI Daily Chart

Source: OANDA fxTrade

 

NATURAL GAS prices are stuck near 2-1/2 year lows and are facing a fifth consecutive month of losses, the longest monthly losing streak since late-2008/early-2009. Natural gas snapped a seven-day losing streak yesterday as forecasts of cooler weather hitting northern US over the next week lent some support at these low levels. The 55-day moving average at 2.7146 has capped prices since December 24.

Precious metals

GOLD’s four-week decline stalled on Friday just above the key 1,270 level and the precious metal has traded mixed so far this week. Strong earnings reports on Wall Street has kept risk appetite alive and hence gold is feeling a bit of pressure. Speculative investors reduced net long positions in the week to April 16, according to the latest CFTC data, and they are now at the lowest since the week of December 4.

Closing prices for SILVER over the past week have been little changed, though with a gradual upward drift from 14.976 to 15.019. Speculative accounts reduced net long positions for a third straight week in the week to April 16 and they are now at the lowest since December 4.

The gold/silver (Mint) ratio is at 84.936, hovering above the 55-day moving average at 84.68 which has supported prices on a closing basis since February 26.

PLATINUM has spent the last two weeks consolidating the strong upmove in March/April, which saw prices climb to a 10-month high. The lack of upward progress has seen speculative accounts reducing net long positions. They trimmed net longs from the highest level in more than a year in the week to April 16, the latest data snapshot from CFTC shows.

There was some good news on the supply front as a five-month old strike at a mine in South Africa, which cut production by 110,000 ounces, has been resolved, according to Bloomberg reports. Platinum mining companies in the country are now preparing for a round of wage negotiations with the unions.

PALLADIUM continues to grapple with the 100-day moving average at 1,387.62 as it consolidates the steep drop from record highs reached in March. The 38.2% Fibonacci retracement of the March/April drop is at 1,437.41, close to yesterday’s peak of 1,432.60. The retreat from record highs has seen speculative investors trimming net long positions. They have scaled back net longs for the past eight weeks, and they are now at the lowest since the week of September 18.

Palladium Daily Chart

Source: OANDA fxTrade

 

Base metals

COPPER prices fell Friday and Monday, retreating from the 10-month highs struck on Thursday, but still remain supported by hopes for a May breakthrough in the US-China trade negotiations. The industrial metal is holding above the 55-day moving average at 2.8877, as it has done since January 29.

Speculative investors are still bullish on the commodity, raising their net long positions to the highest in three weeks, according to the CFTC data as at April 16. Copper inventories at Shanghai Futures Exchange warehouses fell for a third straight week last week, dropping 3.4% to 236,734 tons, according to Bloomberg reports.

Agriculturals

SUGAR has continued to trade in a tight range this week, extending range-bound activity to more than a month. Prices haven’t been able to break out of the 0.1232-0.1292 parameters that have been in place since March 13. Slack demand and abundant supplies are keeping the commodity capped.

The US Department of Agriculture, Foreign Agriculture Service issued a report last week where it forecast sugar output from Brazil will increase 8.5% in the 2019/20 season. Conversely, it expects Thailand’s production to fall 2% in the same period.

Speculative accounts trimmed their net short positions for a fifth straight week to April 16, and they are now the least since the week of February 26, when positioning was net long.

Speculative accounts are the most bearish on CORN in more than 20 years, adding to net shorts for a third consecutive week to April 26, according to CFTC data. Corn prices touched the lowest since October 1 this morning, and look to be heading toward the Fibonacci support level at 3.473, which is the 61.8% retracement of the September-February rally.

Corn Daily Chart

Source: OANDA fxTrade

 

SOYBEANS continue oscillate around the 200-day moving average at 8.742 as speculative investors increased their net short positions to the highest in five weeks, according to the latest CFTC data. In a report released Saturday, China said it anticipates that soybean imports will pick up this year after declining for the first time since 2011 last year. This happened as buyers shunned US supplies due to the ongoing tariff war. Expectations are that purchases will rise by 2.2% from last year.

WHEAT traded at the lowest level in six weeks this morning amid reports of plentiful supplies from both the US and Russia. Speculative investors added to net short positions in the week to April 16, the first increase in six weeks, CFTC data shows.