Commodities Weekly: Trade deal hopes boost oil

Rising hopes that the US and China will sign the “Phase 1” of a trade deal this month has given energy markets a boost, but has capped precious metals. Agricultural commodities are consolidating the upward move after the potential deal was first announced.

Energy

CRUDE OIL prices extended Friday’s gains yesterday, with West Texas Intermediate (WTI) hitting the highest since September 24 and testing both the 200-day moving average at $57.19 and the 50% retracement level of the September-October decline at $57.22. WTI failed to close above the 200-day moving average, and that average has now capped prices on a closing basis since September 26.

Banks’ valuation estimates for the upcoming Aramco IPO next month are quite diverse, with a spread of as much as one trillion dollars. The median estimate appears to be about $1.5 trillion, which would be the world’s largest IPO. The prospectus will be launched on November 9, with the results likely announced on December 4 and trading probably commencing locally on December 11.

Speculative accounts were well positioned for the recent up-move, having increased net long positions for a third straight week to October 29. They are now at the highest since the start of October. On the supply front, the number of US rigs in production fell for a second week last week and are now at the lowest since April 2017.

WTI Daily Chart

Source: OANDA fxTrade

NATURAL GAS prices jumped the most in four months yesterday amid a broader risk appetite from the trade front, and forecasts of below normal temperatures across the US for the November 9-15 period. Prices touched the highest since April yesterday after posting the biggest weekly gain since mid-January last week. Speculative investors had turned net buyers for the first time in four weeks ahead of the move, but are still maintaining net short positions.

Prices are now at 2.717 and approaching a moving average window of 2.79-2.825, which contains the 55-week moving average at 2.79, the 200-week at 2.7945 and the 100-week at 2.825.

Precious metals

GOLD has been relatively tight-ranged over the past week, unable to push higher amid the improving risk appetite. Prices have been oscillating around the 55-day moving average, which is at 1,504.8, for the past week and have held below the 1,520 mark since September 25.

There appears to be some optimism about gold among investors as speculative accounts were net buyers for a second straight week in the week to October 29, pushing net long positions to a five-week high, according to data from CFTC. In addition, gold holdings by exchange-traded-funds (ETFs) are at the highest since 2013, according to Bloomberg reports.

Likewise, SILVER has been stuck in a range for the past week, with a slow gradual grind higher from the start of October. The metal is sitting just above the 55-day moving average at 17.87, with the 100-day moving average on a rising trend at 17.04. The gold/silver (Mint) ratio has barely moved in the past ten days, with closing prices stuck in an 83.417-83.726 range.

Speculative investors remain bullish on silver, having boosted net long positions for a second week, driving them to the highest in six weeks.

PALLADIUM reached another all-time high last Wednesday and since then has been consolidating the upmove with a 2.8% drift lower to 1,778.28. The nearest support point could be the 23.6% Fibonacci retracement of the August to October rally at 1,720.62, with the 55-day moving average below at 1,650.26. Speculative investors turned net buyers for the first time in three weeks in the week to October 29, the latest data snapshot from CFTC shows.

Palladium Daily Chart

Source: OANDA fxTrade

PLATINUM advanced for a second week last week but, after touching the highest since late-September yesterday, has seen last week’s gains almost wiped out. However, speculative investors remain bullish on the metal that is mostly used in emissions control units in diesel cars, increasing net long positions for a fourth consecutive week to October 29 and boosting them to the highest since January 2018.

Base metals

COPPER looks poised to advance for a third straight day today after bringing a three-week rising streak to a halt last week. The metal is heading toward the 55-week moving average at 2.7190, which has capped prices on a closing basis since late-April. The 200-day moving average sits above at 2.7223. Reports of a minor earthquake hitting Chile, which is the world’s largest copper producer, have had little impact on prices.

Hopes for a US-China trade deal, and hence a pickup in copper demand in the future, has started to change speculative investors’ leanings. This group of investors have been net short of the industrial metal since the end of April, but these shorts have now been scaled back to the lowest since the week of July 23 in the last reporting period, according to CFTC.

Agriculturals

WHEAT prices are in the process of consolidating the September- October up-move, which saw them reach the highest since June 28 on the 21^st, as prices retreat to the 38.2% Fibonacci retracement level of that rally at 4.995.

Speculative investors turned net sellers for the first time in three weeks, according to the latest data as at October 29 from CFTC. This pulled net long positions from a 12-week high. The weather situation in China’s wheat-growing areas is forecast as mixed for the current planting season, with rains expected in the southwest and fine, warm weather in central and eastern parts.

SUGAR prices look set to climb for a fourth consecutive day today as they head toward the 200-day moving average at 0.1203. This moving average was last tested on October 2 and it held on a closing basis that time. It was followed by a three-week slide which saw almost 6% wiped off prices. The moving average has remained intact on a closing basis since July 3. Speculative investors turned net buyers for the first time in four weeks, the latest CFTC data show.

Sugar Daily Chart

Source: OANDA fxTrade

SOYBEANS look set to advance for a third straight day today after dipping to a four-week low last Thursday. The recent gains come on the back of comments from US Commerce Secretary Wilbur Ross yesterday that there are no “natural reasons” why the leaders of the US and China cannot sign the Phase 1 trade deal this month. Trump is adamant that such a signing would happen somewhere in the US (at one of his resorts?), which may not appeal to China.

Speculative investors remain bullish on the commodity, having boosted net long positions to the highest since June 2018, according to the latest report as at October 9 from CFTC.

CORN prices are poised for the third weekly decline in four weeks as the commodity consolidates a five-week rally which saw corn prices rise more than 15% from early September to mid-October. Prices are now at 3.798, just above the 55-day moving average at 3.775.

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