Jan 15, 2018 – Commodity Weekly: Oil bulls pushing prices higher, corn and sugar falling
Last week continued the spectacular oil rally as inventories are dropping and Trump threatened to abandon Iran nuclear deal. The grains had hard time after bearish WASDE report although soybeans seem to get some extra boost, both corn and wheat were suffering. The soft sector had a rather bad week too with Sugar #11 dropping almost 7% testing key support at 14 cents.
In 10 trading days the WTI jumped more than 7% while Brent advanced more than 5% and the spread between the two oil contracts dropped from levels above $7 to 5$. The move was partially supported by weakening of the USD against it major peers. The WTI traders by breaking 62.50 resistance (2015 April highs) opened the way toward the next two key levels $67 and $70. The latest seen as crucial from the shale production point of view. However as Saudi Arabia is planning the Aramco IPO, we can’t expect any significant effort to weaken the oil price. The coming refinery maintenance and the drop in demand in this period however could trigger a sharp correction soon.
Last Friday the USDA published his monthly WASDE report which showed increase in estimated production in Corn and in a reaction the March corn dropped to 345.50 which is the contract low. The market is flooded with grains and the stock were never so full with corn and soybeans at this period of time. There is only 1a little hope for any trend reversal without a weather shock or increased demand from China. The USDA decreased its forecast for Soybeans and it helped to trigger a sharp rally creating an outside day and potentially a reversal. However we have to stress again the oilseed needs support from South American weather to confirm the concerns regarding potentially weaker supply.
Last week funds were net buyers of soft commodities, while they significantly decreased ther net short in Sugar. The move was a result of the index rebalancing however despite this huge shift towards the longs in hedge fund positioning the price of raw sugar continued to fall. The reason could be that after the trade saw the rebalancing not changing the market direction increased their shorts after Tuesday (last day of COT week).
Good Luck and remember to watch your risk and be consistent
Mr. Tech Man