Commodities Weekly: Oil dips from six-month high on inventory build

A strong US GDP print for the first quarter gave a temporary lift to risk appetite in the past week, though this has been tempered somewhat by weaker PMI numbers out of China today. Dovish expectations have been built into the US FOMC meeting starting today, and if these are not realized, then commodities might suffer. Commodities are already trading with a softer bias this week.

Energy

CRUDE OIL prices slid to a three-week low last Friday following a surprise build in inventories which induced some profit-taking. US President Trump also noted that prices were “too high” and called on OPEC to increase production to counter the shortfall once Iran sanction waivers expire. In a recent report, the IMF calculated that Saudi Arabia needed oil prices at $85 per barrel to balance its spending budget, that’s up from $73 dollars in the September report.

UK’s Telegraph newspaper noted that higher oil prices could have a knock-on effect on airlines, with unhedged aviation fuel strategies likely costing Europe’s biggest airlines as much as one billion Euros in the January to March period.

Speculative investors remain bullish on the commodity however, with net long positions boosted to the highest since October in the week to April 23, according to the latest data snapshot from CFTC. Investors have added to net long positions for nine out of the last 10 weeks.

West Texas Intermediate Daily Chart

Source: OANDA fxTrade

NATURAL GAS prices advanced last week for the first time in three weeks as the commodity attempts to build a price base from 2-1/2 year lows. Warmer weather forecasts across the US for next week are building a case for an uptick in demand, though prices look set to complete a fifth monthly decline this month.

Speculative investors remained unimpressed in the week to April 23, adding to net short positions for a third straight week. Positioning is now at its most bearish since the week of September 18.

 

Precious metals

GOLD managed the first up-week in five weeks last week but is still facing the third consecutive monthly drop this month. Gold held by exchange-traded funds continue to slide and are now only up net about one ton so far this year. Data out of China showed that the nation is still adding to its gold reserves, increasing holdings by 11.2 tons in March. In the buying spree over the past four months, the nation’s central bank has added 43 tons of gold. Russia is also continuing its diversification out of the US dollar in its reserves and bought 18.7 tons of gold last month.

Net long positioning by speculative investors is at its lowest since the week of November 27. Goldman Sachs is also not so encouraged by gold’s price action and recently trimmed its gold forecasts for 2019 citing the low volatility environment and receding recession fears. Its new 3 –month target is 1,300, 6-month estimate is 1,325 and in one year it sees gold at 1,375 per ounce.

Gold is currently trading within a wedge formation and may struggle to overcome the 100-day moving average at 1,292.

Gold Daily Chart

Source: OANDA fxTrade

Bearish bets on SILVER by speculative investors are at the highest since December, according to CFTC data, as the precious metal languishes near four-month lows. The gold/silver (Mint) ratio remains elevated, holding comfortably above the 55-day moving average at 84.729, as it has done for two months.

PLATINUM has been consolidating this year’s move higher, which has taken it to levels not seen since May last year. The metal is now at 897.38 after touching 914.37 earlier this month, the highest since May 31. Speculative positioning has remained static, with net long positioning hovering near 13-month highs.

PALLADIUM continues to struggle to get past the 55-day moving average resistance at 1,466.04 after dropping below it on March 27, and suffered the biggest one-day drop in a month yesterday. The metal is now sitting below the 100-day moving average at 1,396.71.

Despite the lack of upward momentum, speculative accounts are building up net long positions again, with positioning turning net positive for the first time in nine weeks, the latest data from CFTC shows.

 

Base metals

COPPER has been range-bound within the parameters of 2.84-2.98 for the past two months as traders wait for the outcome of the protracted US-China trade negotiations. Net long positions held by speculative investors are at a four-week low, according to the latest data as at April 23 published by CFTC.

 

Agriculturals

WHEAT fell to the lowest since January 2018 in early trading this morning amid supply pressures. India announced on Friday that it would raise the import tax on foreign wheat to 40% from 30% in order to protect domestic growers. Meanwhile, Russia’s Agriculture Minister stated that 20% of its winter wheat crops had been lost due to adverse weather in the Volga region in the middle of this month.

Speculative investors remain bearish, with net short positions increasing in the week to April 23, the latest data shows.

SUGAR prices fell for a fourth straight day yesterday and look set for a second weekly loss. Prices may find some technical support at the 200-day moving average at 0.1190 and the 55-week moving average at 0.1187.

Sugar Daily Chart

Source: OANDA fxTrade

Possibly lending additional support is news that China’s sugarcane growing areas are facing heavy rains and flooding this week, according to the local meteorological centre, which could impact crops.  Thailand’s Cane and Sugar Board announced that sugar output for the November 20 to April 15 period was 14.4 million tons, which was derived from 129.7 million tons of sugarcane.

Speculative positioning in sugar turned net long for the first time since the week of February 26, the latest CFTC data shows, as investors completed six straight weeks of net buying.

CORN is recovering from seven-month lows struck last week, but may be facing a negative day today after a three-day rally. A wet weather outlook for US corn areas could be lending support. Speculative investors still remain uber-bearish, with net short positioning at the highest since July 1997.

Speculative investors are bearish on SOYBEANS, with net shorts at the highest since June 2017, as prices slide to six-month lows. April will be the third monthly drop in a row.