Commodity market overview for November 20, 2018


The beginning of the week was quite controversial for the commodity markets.

Oil and gas (that are usually correlated between each other) are moving in different directions. Despite optimistic expectations regarding the oil price reversal to the level of USD 70 per one barrel, the quotes have declined even deeper. The natural gas price is, on the contrary, increasing, which causes doubts among investors.

The high prices of oil and gas are quite unfavorable for the United States of America, as in this case, European and Asian suppliers will get some advantages. The gold prices are relatively stable so far, although the stock markets and the US dollar are losing their value. And this means that investors are not in hurry to open new transactions.

1. Oil keeps declining

The last Tuesday has stuck out in the investors’ memory for its panic sell-outs of the oil futures that eventually crashed the entire marked by more than 5%. The locked in daily minimum was USD 61.71 per one barrel. It was slightly higher than the psychological support level of “60”. Analysts believe that one of the main explanations of such panic sell-outs is the statement of Mr. Donald Trump that the United States of America and Saudi Arabia remain true partners, despite any geopolitical conflicts. Against the background of the excess supply, investors acquired this information as a signal of the reduction of risks connected with the Arabian oil supply restraint.

Despite the fact that the oil has partially recovered its losses, investors are pessimistic. Raw material shortfall risk as a consequence of the sanctions against Iran was exaggerated. The second factor is the political uncertainty of Great Britain and Italy. The oil is partially supported by the data about the oil reserve decrease (by 1.5 million barrels per week) and by the record oil supplies to India (around 5 million barrels per day).

2. Natural gas is the biggest concern of investors

The natural gas price keeps increasing, steadily reaching the level of USD 5. During the previous day, its quotes were reaching the level of “4.741” and, despite some insignificant pullback, have closed just over the level of “4.5” by the end of the day. The level of USD 5 for 1 million BTU is not the limit for the natural gas, but if we look at the chart over the last 10 years, it would be interesting to pay attention on how sharp the price splash has occurred during the last few days.

What concerns investors more is the fact that in case the level of USD 5 is overcome, the sharp loss of the competitive edge of the US gas will happen, compared to the gas produced in Europe and Asia. The volatility is also boosted by the fact that gas storage facilities are half-empty at the beginning of the heating season. The current prices are equivalent to the prices that were in January –February, 2014. But at that time, this was due to intense cold, but now the price is already growing even before the onset of the cold season.

According to Global Gas Analytics, the US gas storage facilities will have around 30 billion square meters by the beginning of the heating season, while one year ago this number was 39.4 billion square meters. The market operators will simply not have enough time to produce the required amount of gas, and, therefore, its price will go even higher. And when that happens, even on the domestic market the “blue flame gas” may yield its positions to the coil, for instance.

3. Gold demonstrates medium volatility

So far, the gold quotes remain at their positions, demonstrating some relatively small volatility against the background of tension between the United States of America and China. Aside from trade wars between countries, the personal relationships between their leaders become more and more tense. For instance, on Tuesday, one of the US trade representatives Mr. Robert Emmet Lighthizer has published a report, which contains some accusations against China regarding the intellectual property and technologies theft.

So far, investors are not in hurry to buy or sell oil futures, waiting for the results of G20 summit, which is about to take place in Argentina in the end of the month. The leaders of the United States of America and China are going to arrange an official meeting during this summit. This meeting will define the course of further actions of investors.

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