Commodities Weekly: Oil rises first time in eight days

Central banks’ assurances that they stand ready to act to support local economies hit by the CoVid-19 outbreak turned risk appetite around yesterday, lifting equity, oil and industrial metals markets while hurting gold. Agricultural commodities were mixed, with wheat and sugar under pressure but corn and soybeans rose.

An emergency teleconference meeting of senior G7 economic officials has also been hastily set up for later today, creating expectations of new stimulus measures from the group, which is helping to lift sentiment.

Energy

CRUDE OIL prices rose for the first time in eight days yesterday, buoyed by central bank assurances of local support for their respective economies impacted by the spread of the coronavirus. Expectations that OPEC and its allies might announce more production cuts at the meeting later this week also helped to lift prices. Ahead of the meeting, Russia’s Putin said he was comfortable with current production levels, but would support any OPEC decision.

Speculative investors increased net long positions for a second consecutive week in the week to February 25, according to the latest CFTC data, and they are now at the highest in four weeks.

West Texas Intermediate (WTI) posted the biggest weekly decline since at least 2003 last week but has climbed to a five-day high this morning, and is approaching the 50% retracement level of the February 20 to March 10 drop at $48.95.

WTI Daily Chart

Source: OANDA fxTrade

NATURAL GAS prices also brought a seven-day losing streak to an end yesterday and look to be building a second day of gains today. Last week saw the biggest decline since late-November, which saw prices pressured to the lowest in four years.

Speculative investors were shaken by the drop last week and turned net sellers for the first time in four weeks, according to CFTC data to February 25.

 

Precious metals

GOLD had a rollercoaster journey last week. At one point, prices touched the highest in more than seven years but then reversed in the latter part of the week to close lower for the first time in three weeks. This week has started off better, with gold reversing ahead of the 55-day moving average, which is at 1,561.50 today.

Exchange-traded funds (ETFs) increased net purchases for the year so far to 3.24 million ounces as at last Friday, according to a Bloomberg report. Meanwhile, speculative investors turned net sellers of the precious metal for the first time in four weeks in the week to February 25, according to the latest data snapshot from CFTC.

SILVER has also rebounded from seven-month lows amid better risk appetite, but it seems the rebound came too late for some speculative investors. They reduced net long positions in silver during the week to February 25, pulling overall net long positions from near three-year highs.

Silver closed below the 200-day moving average on Friday for the first time since June 17 last year, and that moving average, which is at 17.0354 today, could act as a near-term technical resistance point.

The gold/silver (Mint) ratio surged higher last week on gold’s rise, hitting the highest level on record going back to mid-2006. Last month was the biggest monthly advance since September 2011, capping the second monthly climb in a row. Yesterday’s drop stopped a seven-day rally in its tracks.

PLATINUM is trading higher this morning, halting an eight-day slide which saw the metal drop 16.7% in the period. The monthly decline was the largest in nine months, and saw platinum hit six-month lows.

Exchange-traded funds increased net platinum holdings last week by 7,000 troy ounces, Bloomberg reported yesterday. Meanwhile, speculative investors reduced net long positions for a fourth consecutive week in the week to February 25, trimming them to the lowest since the week of December 10, according to CFTC data.

Platinum Daily Chart

Source: OANDA fxTrade

PALLADIUM looks set to halt a two-day losing streak today after prices fell to the lowest in two weeks. Prices snapped a three-week rising streak last week after hitting a new record high.

Speculative investors appear to think that palladium’s bull-run might be coming to an end soon, as they reduced net long positions to the least since August 2018 in the latest reporting week to February 25, CFTC data show.

Base metals

COPPER prices jumped the most since December 6 yesterday following the central banks’ moves to reassure markets. That snapped a five-day losing streak as expectations of lower rates from the central banks helped to lift the gloomy cloud above global growth and hence demand for industrial metals.

Agriculturals

SUGAR prices fell for a sixth straight day yesterday despite expectations of a hefty sugar supply shortage for the 2019/20 period. The International Sugar Organization has forecast that this season’s global deficit will be 9.4 million tons, the biggest in 11 years, as a result of lower output from Thailand amid heavy droughts in the country, and India. Increased production from Brazil and record output from Russia would not be enough to compensate for the shortfall.

However, speculative investors remain bullish on the commodity having boosted net long positions to the most since December 2016, according to the latest data from CFTC.

Sugar Daily Chart

Source: OANDA fxTrade

South Korea is the fourth-largest importer of US CORN and the spike in CoVid-19 cases in the country last week saw corn prices slump to the lowest since September 18. The central bank-induced rebound helped prices rise the most since January 17 and the commodity is looking to extend the current rally to a third day today.

Speculative investors increased net short positions in the week to February 25 and they are now at the highest since the week of December 10.

SOYBEANS have risen to an 11-day high this morning after opening above the 200-day moving average at 8.8794 for the first time since February 21. The 55-day moving average is at 9.0374.

Speculative investors remain bearish on the commodity after increasing net short positions to the highest since the week of December 10 in the week to February 25, CFTC data show.

WHEAT prices slumped to the lowest since November 22 last week, but still managed to hold above the 200-day moving average, which is at 5.1368 today. Rains are expected in India’s wheat producing regions in the latter part of this week, which could affect harvests.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Andrew Robinson

Andrew Robinson

Senior Market Analyst at MarketPulse
A seasoned professional with more than 30 years’ experience in foreign exchange, interest rates and commodities, Andrew Robinson is a senior market analyst with OANDA, responsible for providing timely and relevant market commentary and live market analysis throughout the Asia-Pacific region. Having previously worked in Europe, since moving to Singapore he worked with several leading institutions including Bloomberg, Saxo Capital Markets and Informa Global Markets, proving FX strategies based on a combination of technical and fundamental analysis as well as market flow information. Andrew began his career as an FX dealer with NatWest and the Royal Bank of Scotland in the UK.