Commodities Weekly: Global growth doubts crush oil prices

The outbreak and escalation of the Wuhan coronavirus has raised questions whether the hoped-for rebound in global growth is achievable, pressuring oil prices on scaled back demand forecasts. Safe haven assets have been in demand, while the agricultural sector remains mixed.

 

Energy

CRUDE OIL prices touched levels not seen since October at the start of this week as investors anticipated a slackening in demand should the coronavirus continue to spread and escalate. Prices staged a mild recovery yesterday, the first up-day in seven days, on a perceived technical rebound rather than a shift in trend.

Weekly data from the American Petroleum Institute to January 24 showed an increase in crude oil stockpiles of 4.27 million barrels from 1.6 million the previous week. Today sees the release of the equivalent data from the Energy Information Administration, and they’re expected to show an increase of 460,000 barrels to last Friday. The number of US rigs in production increased for a second consecutive week to last Friday also, according to weekly data from Baker Hughes.

Speculative investors trimmed net long position for a second straight week in the week to January 21, according to the latest data from CFTC. Net longs are now the lowest in six weeks.

WTI Daily Chart

Source: OANDA fxTrade

 

NATURAL GAS prices look on track to post the first up-week in three weeks, if current levels are maintained. Prices are getting a lift from forecasts of colder weather across the US Midwest for the February 7-11 period, which could boost natural gas demand for heating.

Speculative accounts are the most bearish on the commodity since June 2015 and they increased net short positions for a fourth week to January 21. Data to be released tomorrow is expected to show inventories falling by 101 billion cubic feet (bcf) as a result of lower US production and anticipated higher demand from cooler weather.

 

Precious metals

GOLD prices look set to slide for a second straight day as the perceived economic impact of the Wuhan virus appears to be not as bad as first feared. The precious metal is still up 3.2% so far this year and touched the highest in almost seven years on January 8. That tested the 61.8% Fibonacci retracement level of the September 2011 to December 2015 drop at 1,594.08. The metal has yet to close above that level so far this time around.

Gold Monthly Chart

Source: OANDA fxTrade

 

SILVER touched the lowest level in more than a month in early trading today and is testing the 55-day moving average at 17.41. That moving average has supported prices on a closing basis since December 20. The metal didn’t gain much as a safe haven when the Wuhan virus was first reported, and it has fallen victim of a current rotation back into equities.

Speculative accounts are still bullish however, increasing net long positions for a second straight week in the week to January 21, CFTC data show.

 

PALLADIUM appears to be losing a bit of its shine recently and has fallen more than 10% in the space of a week from the peak on January 21. That’s usually a threshold that the market sees as denoting a possible shift in trend or sentiment, and could signify that the current correction could extend deeper.

On the other hand, a recent report from the Heraeus Group, a German technology group with a focus on precious and special metals, forecast that the global supply shortfall for this year would be half a million ounces, and the structural shortfall would be in place for a few years.

Palladium holdings at Exchange-traded Funds (ETFs) have fallen to the lowest levels since October, while speculative investors were net sellers for a second week to January 21, cutting net long positions to the least in five months.

PLATINUM reached a two-week low yesterday before rebounding but still looks on track to fall for a second consecutive week this week. Speculators remain bullish on the metal having added to net long positions for a 10^th consecutive week to January 21, lifting them to the highest level since records began in 1993, according to the latest data snapshot from CFTC.

 

Base metals

COPPER is facing its first up-day in seven days which has seen the industrial metal tumble 9.3% to the lowest levels since October 10. That’s the longest losing streak since mid-2018 and comes amid fears that the spreading coronavirus would affect demand and remained the driving force behind the decline.

Speculative investors remained undeterred however, lifting net long positions to the highest since the week of March 19, according to the latest CFTC data as at January 21.

Chile’s copper production is expected to be flat this year compared to last, but is forecast to rise 20% by 2030, according to the country’s copper commission.

 

Agriculturals

SUGAR rebounded strongly from a three-day sell-off yesterday, jumping 2.23% to close at 0.14316. Speculative investors remain bullish as they focus on the expected supply shortfall this year, boosting net long positions to the highest since March 2017.

Thailand’s sugar output was 5.2 million tons since December 1, the start of the current season, according to data from the Office of the Cane and Sugar Board.

 

CORN posted the biggest gain in 11 days yesterday as the commodity rebounded off the 100- and 55-day moving averages at 3.7451 and 3.7406, respectively. Tight supplies in South America is boosting demand for US produce and assisting the recovery. Speculative accounts have increased net long positions to the highest since the week of August 20, according to the latest data snapshot from CFTC.

Corn Daily Chart

Source: OANDA fxTrade

 

SOYBEANS had fallen for six straight days up until today as they tested support at the 200-day moving average at 8.8266. The six-day drop had pressured prices to the lowest in eight weeks and close to the 78.6% Fibonacci retracement of the December-January rally at 8.787.

Speculators had scaled back net long positions to the least in five weeks in the week to January 21, according to CFTC data.

 

WHEAT is little changed on the week but could be facing its first down-week in four weeks. The commodity is coming under a bit of pressure as investors calculate whether the outbreak of the Wuhan virus would prevent China from fulfilling its obligations for US grain purchases under the US-China Phase One trade deal. Speculative investors remain positive however, with net long positioning at its most bullish since March 2017.