Apr 10, 2018 – Commodity Weekly: Oil rebounded from 2015 highs, sugar still under pressure despite divergence
The commodity prices index didn’t change much the previous week, although there was a drop in BBG commodity index by 0.6%. The main driver was the energy sector, especially oil that took the hit after inventories in Cushing have risen and trade war tension is easing. The latest developments in Syria seems to change the market sentiment … again. The grains got some boost despite the introduced Chinese tariffs on US goods.
The competition between supply glut and the rising demand is the long term key currently. In the coming days the monthly reports from major industry associations will be published. Traders will be looking for clues how the future of consumption could look like as the production outlook is more or less clear. However the recent escalation of Syrian war could help the bulls gain some traction as US may get more involved in the conflict after the recent chemical attack.
Technically the market is forming a nice double top but WTI price bounced overnight from 2015 highs for the second time this year and this could mean the trend reversal failed. Definitely the bears will have to break this significant level again in order to target the $58 key support.
The global market of the sweetener is really under pressure due to huge overproduction. The main threat currently is India where the domestic sugar market is suffering from production glut and the government is struggling to prompt producers to export sugar and ease the pressure on the industry. After the country scrapped 20% export tax the government now made it compulsory for mills to export 2 mil. tonnes. However sugar mills are reluctant to proceed as they would suffer severe losses due to low global prices.
On the other hand in Brazil the increased ethanol production is likely to decrease sugar production by 4-5 mil. tonnes that means approximately 10-15% of the countries sugar production. With an expected increase in European sugar production the situation seems to be rather balancing and the prices will likely remain pressured.
Technically the chart is showing triple bullish divergence in raw sugar, and this can cause temporary bounce as technical traders are trying to catch the bottom of the market. The strong fundamentals however will make it very hard for any bull run to find momentum in 2018. Weather could bring some relief to prices eventually later the year.
Good Luck and remember to watch your risk and be consistent
Mr. Tech Man
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