By Kjeld Lynggaard, Trading Advisory
It has been a Wild Wild West lately and a difficult few weeks for commodity players, hedgers and producers, with macroeconomic uncertainty prevailing over stock markets, with risk on and risk off on an intra-day basis and speculative positions being stopped out, washed out, re-entering, rebuilding, but not panicking. But most of the erratic moves have been caused by external events such as IEA release, USD volatility and not by rock firm underlying fundamentals supporting commodity prices long-term.
It has been a Wild Wild West lately and a difficult few weeks for commodity players, hedgers and producers, with macroeconomic uncertainty prevailing over stock markets, with risk on and risk off on an intra-day basis and speculative positions being stopped out, washed out, re-entering, rebuilding, but not panicking. But most of the erratic moves have been caused by external events such as IEA release, USD volatility and not by rock firm underlying fundamentals supporting commodity prices long-term.
A reduction of speculative longs as observed in recent weeks is structurally positive for commodity assets, which still are run by weather developments, geo-political events and the good old supply and demand fundamentals. Also Chinese speculative volumes reduced as Commodity futures trading in China, the largest buyer of copper and soybeans, tumbled 30 percent in the first half as regulators clamped down on speculation and as the central bank mopped up liquidity to ease rising inflation.
Around $7bn was withdrawn from core commodity investments in May, a level of outflow not seen since the financial crisis. Total commodity AUM experienced a massive decline of $26bn to $425bn , the first decline since August 2010 and the largest since the $55bn fall in October 2008
Stay alert Annie and keep some powder dry for continued volatility ahead.
Oil news is bullish
Indian oil demand was at its second highest level ever in May, with diesel demand at a record high buoyed by greater usage in power generation.
Japanese demand already shows signs of improvement, with May demand down by just 90 thousand b/d y/y.
Indian oil demand was at its second highest level ever in May, with diesel demand at a record high buoyed by greater usage in power generation.
Japanese demand already shows signs of improvement, with May demand down by just 90 thousand b/d y/y.
Latest weekly DOE data show a fall in US oil inventories led by crude inventories, while June demand softens on the back of poor distillate demand. The surplus of US oil inventories relative to their five-year average has fallen by 4.1 million barrels in the latest data release and now stands at just 27.1 million barrels.
IEA - OPEC 1-1, IEA scores own goal
Oil prices recovered strongly this week as advocated by TAT in our Next Week and Trades on the radar for Saxo Bank Trading Advisory clients and now stand above levels at which the SPR was released. August Brent gained $3.6 to $111.65/bbl while the equivalent WTI contract added $1.8 to $94.56/bbl. Indeed, after the initial knee-jerk reaction lower, it does seem to us that the market is finally viewing the IEA stock release with a fair degree of skepticism and even supporting bullish view, with worries about the possible signals it sends beyond the upfront price developments an focusing on the long-term impact. If in the long-term the oil goes back and the release is essentially borrowing oil from the future, it will have done little to alleviate market tightness for the future.
Oil prices recovered strongly this week as advocated by TAT in our Next Week and Trades on the radar for Saxo Bank Trading Advisory clients and now stand above levels at which the SPR was released. August Brent gained $3.6 to $111.65/bbl while the equivalent WTI contract added $1.8 to $94.56/bbl. Indeed, after the initial knee-jerk reaction lower, it does seem to us that the market is finally viewing the IEA stock release with a fair degree of skepticism and even supporting bullish view, with worries about the possible signals it sends beyond the upfront price developments an focusing on the long-term impact. If in the long-term the oil goes back and the release is essentially borrowing oil from the future, it will have done little to alleviate market tightness for the future.
Moreover, if this is viewed as OPEC being unable to meet current demand through its capacity usage or even worse if output is reduced as consumer governments take on the role of the marginal supplier, the negative impact on prices will be extremely short-lived and even positive….short term gain, long term pain!
Natural Gas: Watch the air-conditioners
US natural gas prices gained on the week as warmer temperatures approaching supported the market. August contract is trading virtually flat to July, expired and gained from 4.20 to 4.36 during the wobbly week. The approach of warmer temperatures has overcome what still appears to be bearish sentiment in the marketplace. Enthusiasm could be short-lived as EIA-914 and Natural Gas Monthly data released yesterday showed mixed news, tending to be bearish and market to stay in secular range 4.10-4.75 in Q3 2011.
EIA-914: The increase in supply roughly matched that predicted by more contemporaneous pipeline flow data, meaning the market was not necessarily caught off guard by the robust production increase reported. On a y/y basis, production is running well ahead of last year by 4.6 Bcf/d, led by growth in Louisiana. The success of shale gas, in particular from the Haynesville and Marcellus, in boosting these volumes is profound.
US natural gas prices gained on the week as warmer temperatures approaching supported the market. August contract is trading virtually flat to July, expired and gained from 4.20 to 4.36 during the wobbly week. The approach of warmer temperatures has overcome what still appears to be bearish sentiment in the marketplace. Enthusiasm could be short-lived as EIA-914 and Natural Gas Monthly data released yesterday showed mixed news, tending to be bearish and market to stay in secular range 4.10-4.75 in Q3 2011.
EIA-914: The increase in supply roughly matched that predicted by more contemporaneous pipeline flow data, meaning the market was not necessarily caught off guard by the robust production increase reported. On a y/y basis, production is running well ahead of last year by 4.6 Bcf/d, led by growth in Louisiana. The success of shale gas, in particular from the Haynesville and Marcellus, in boosting these volumes is profound.
Carbon, bungee jumped
European Union carbon permits fell 20 percent in June, the most since January 2009 as regulators set rules that will prompt more supply and potentially trim demand. The EU plans to sell at least 300 million tons of allowances starting this year and running through 2012, boosting supply. They will be the first sales for the phase than begins in 2013 and ends in 2020. Trading in allowances jumped to a record this month on ICE as prices plunged to their lowest in more than two years. This week, Carbon regained some strength and trading low 2010 levels which seems low considering the global industrial pick-up.
European Union carbon permits fell 20 percent in June, the most since January 2009 as regulators set rules that will prompt more supply and potentially trim demand. The EU plans to sell at least 300 million tons of allowances starting this year and running through 2012, boosting supply. They will be the first sales for the phase than begins in 2013 and ends in 2020. Trading in allowances jumped to a record this month on ICE as prices plunged to their lowest in more than two years. This week, Carbon regained some strength and trading low 2010 levels which seems low considering the global industrial pick-up.
Precious metals maybe not so precious
Silver spec’s are out, but investors remain long:
Silver spec’s are out, but investors remain long:
Silver
Silver ETP holdings continue to dwindle, with June set to mark the third consecutive month of outflows also emphasized by recent reduced CFTC data showing only minor longs left in Silver futures.
Silver ETP holdings continue to dwindle, with June set to mark the third consecutive month of outflows also emphasized by recent reduced CFTC data showing only minor longs left in Silver futures.
Gold
Gold buckled under the weight of growing investor appetite for risk on Thursday after Greece looked increasingly likely to push through austerity measures, which offset the potentially bullish impact of a weaker dollar.
The price of gold is on course for an eleventh consecutive quarterly gain during the second three months of 2011, so Gold is losing steam as safe haven status and inflation hedge excuses are evaporating. The battle for 1500 continues.
Gold buckled under the weight of growing investor appetite for risk on Thursday after Greece looked increasingly likely to push through austerity measures, which offset the potentially bullish impact of a weaker dollar.
The price of gold is on course for an eleventh consecutive quarterly gain during the second three months of 2011, so Gold is losing steam as safe haven status and inflation hedge excuses are evaporating. The battle for 1500 continues.
PGM
Platinum and Palladium however received supporting news over the cause of the week with risk of political impact from nationalization of South African mines, whilst global car sales data is showing signs of life with Japan picking up again after March disaster, all in all very supportive for PGM.
Platinum and Palladium however received supporting news over the cause of the week with risk of political impact from nationalization of South African mines, whilst global car sales data is showing signs of life with Japan picking up again after March disaster, all in all very supportive for PGM.
Agriculture – Cliffhanger
Corn extended its biggest monthly loss since October 2008 and wheat tumbled to the lowest level in almost a year after the U.S. reported acreage and inventories that topped analyst’s estimates.
The USDA surprised the market yesterday and caught investors completely off guard with limit down on corn and wheat contracts on fund selling and stop losses. However, questions remain as to exactly how much of the recent Midwest flooding was captured in the acreage survey, which was conducted in early June.
But all in all higher acreage and higher stocks than expected caused 7% sell-off in both grains whilst soybeans enjoyed “safe haven” status after figures met expectations. The massive flooding will likely cause huge revisions of just released data which will be price supportive and recent sell-off is finally taking the heat of food prices and inflation, whilst underlying demand fundamentals are improving rapidly. Inventories were also reported higher than expected but stocks to use ratios remains almost all time low, so reaction seems overdone. Corn stocks to use ratio is currently below 5%, whilst wheat stocks around 21% of global annual consumption. Corn cannot afford one single weather event and Apollo 13 will take off again.
Rice, our top pick, however raced limit up the daily 50c to 15.05 as USDA slashed its plantings estimate and the impact from Mississippi River flooding has submerged fields whilst the weather has either been too hot or too dry.
Don’t keep your powder dry, start shooting as grain prices are back to Q2 2010 levels pre global weather hiccup.
Corn extended its biggest monthly loss since October 2008 and wheat tumbled to the lowest level in almost a year after the U.S. reported acreage and inventories that topped analyst’s estimates.
The USDA surprised the market yesterday and caught investors completely off guard with limit down on corn and wheat contracts on fund selling and stop losses. However, questions remain as to exactly how much of the recent Midwest flooding was captured in the acreage survey, which was conducted in early June.
But all in all higher acreage and higher stocks than expected caused 7% sell-off in both grains whilst soybeans enjoyed “safe haven” status after figures met expectations. The massive flooding will likely cause huge revisions of just released data which will be price supportive and recent sell-off is finally taking the heat of food prices and inflation, whilst underlying demand fundamentals are improving rapidly. Inventories were also reported higher than expected but stocks to use ratios remains almost all time low, so reaction seems overdone. Corn stocks to use ratio is currently below 5%, whilst wheat stocks around 21% of global annual consumption. Corn cannot afford one single weather event and Apollo 13 will take off again.
Rice, our top pick, however raced limit up the daily 50c to 15.05 as USDA slashed its plantings estimate and the impact from Mississippi River flooding has submerged fields whilst the weather has either been too hot or too dry.
Don’t keep your powder dry, start shooting as grain prices are back to Q2 2010 levels pre global weather hiccup.
Wheat prices:
Cotton down, Benetton up!
U.S. farmers seeded 9.2 percent more cotton than forecast in March, exceeding estimates by analysts, after prices surged to a record this year according to USDA data. Cotton fell to a seven-month as more orders were canceled from the U.S., the world’s top exporters, and a report showed planting topped estimates
U.S. farmers seeded 9.2 percent more cotton than forecast in March, exceeding estimates by analysts, after prices surged to a record this year according to USDA data. Cotton fell to a seven-month as more orders were canceled from the U.S., the world’s top exporters, and a report showed planting topped estimates
Sugar, lifted by rain
The strongest gainer was sugar, with the front month peaking 8% higher and closing only just 1% higher on the week. Sugar prices have gained on logistical delays at Thai ports and a weak start to Brazil’s harvest. Indeed, also Unica released latest sugarcane production statistics from Brazil's centre-south which highlighted the wide lag in current crushing compared to year-ago levels.
Global Sugar Organisation Unica said rains in southeastern Brazil slowed harvesting in the first half of June. Rainfall also watered down the cane that was collected, contributing to a 2% decline in recoverable sugar content per ton and a 3.3% decline in ethanol yield..
The global sugar balance remains extremely tight, hence front month old crop will remains extremely volatile for the reminder of the year 2011, with risk clearly to the upside for front contracts whilst deferred remains under pressure.
The strongest gainer was sugar, with the front month peaking 8% higher and closing only just 1% higher on the week. Sugar prices have gained on logistical delays at Thai ports and a weak start to Brazil’s harvest. Indeed, also Unica released latest sugarcane production statistics from Brazil's centre-south which highlighted the wide lag in current crushing compared to year-ago levels.
Global Sugar Organisation Unica said rains in southeastern Brazil slowed harvesting in the first half of June. Rainfall also watered down the cane that was collected, contributing to a 2% decline in recoverable sugar content per ton and a 3.3% decline in ethanol yield..
The global sugar balance remains extremely tight, hence front month old crop will remains extremely volatile for the reminder of the year 2011, with risk clearly to the upside for front contracts whilst deferred remains under pressure.
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