Commodity Traders Weekly Outlook: Heating Oil and Natural Gas Rebound as Palladium Collapses

Commodities saw a big bounce in energy with heating oil bouncing 12.19% on the week and Natural gas, oil and gasoline all up over 4%. The Bloomberg commodity index increased 0.9% (up 13.7% y-t-d). Wheat futures higher for the week but lower Friday as funds continue to be short Chicago wheat on slow demand for US wheat and chatter of higher Russia and Australia supplies. Silver and copper both gave back some of last week’s gains. Palladium prices collapsed as Chinese economic data combined with the explosive COVID infection wave is a serious threat to Chinese auto consumption and as such a threat for auto catalyst inputs like palladium.

Heating Oil led the pack

December 10 – 16 2022


Commodities

Weekly Commodity Highlights

  • Bloomberg Commodities Index increased 0.9% (up 13.7% y-t-d).
  • Spot Gold slipped 0.2% to $1,793 (down 1.7%).
  • Silver declined 1.1% to $23.22 (down 0.4%).
  • WTI crude rallied $3.27 to $74.29 (down 1%).
  • Gasoline recovered 3.7% (down 4%),
  • Natural Gas jumped 5.7% to $6.60 (up 77%).
  • Copper dropped 3.0% (down 16%).
  • Wheat rallied 2.6% (down 2%),
  • Corn gained 1.4% (up 10%).
  • Bitcoin was down $550, or 3.2%, this week to $16,600 (down 64%).
Weekend December 16, 2022

Industrial Metals

Aluminum

Highlights

  • The world’s top aluminium producer, China’s primary aluminium production in November climbed 9.4% from a year earlier with3.41 million tonnes as looser power restrictions allowed some regions to ramp up output and as new smelters started operation.
  • China is the biggest producer, accounting for 60% of production, followed by Russia and then Europe and the U.S.
  • On the supply side, LME has decided against banning Russian metal from trading and storing in its warehouses because many traders are still planning to buy the metal in 2023.
  • Aluminum is down roughly 40% from a record high of approximately $4,000 in March amid persistent fears of a demand-sapping global recession triggered by an aggressive tightening campaign from major central banks.
  • Alcoa, the largest US aluminum producer, has warned investors that high energy and raw material costs and a fall in aluminum prices are putting pressure on margins.
  • The car industry is the world’s largest aluminum consumer, with nearly 67 million vehicles per year, according to SkyQuest.

Technical (Alcoa)

We analyze Alcoa as a surrogate to Aluminum given its high beta relationship and more liquid aspect as an investment vehicle. $AA retested the 50Wma and 50% confluence. From there as the Chikou rebalanced it closed under the tenkan. We have support below at 2/8 sphere of influence under the tenkan confluence.

Alcoa

Copper

Highlights

  • Copper faces extremely negative Chinese developments with contractions in broad-based industrial measures compounded by the surging Covid crisis.
  • The Chilean state copper production agency said their output to grow 7.5% next year. The Chilean national copper company also announced their 2022 copper production was set to contract by 5.8%. LME copper warehouse stocks declined by 1800 tons Thursday.
  • Mine protests in Peru hamper production.
  • Commodity trader Trafigura and Goldman Sachs both warned that global copper stocks have fallen to record lows with current inventories enough to supply world consumption for just 4.9 days
  • Glencore estimates a supply shortfall of 50 million tonnes in 2023.

Technical

Copper broke to the upside out of the pennant to test the 50wma after it rebounded sharply off the tenkan but has failed three times here in the past month. The flattening Weekly Kijun acted as a magnet to close right there. Copper had been a leader in the risk on movement for commodities.

Weekly Copper Outlook
Copper Supply Crunch

Precious Metals

  • Spot Gold was unchanged at $1,797 (down 1.7%).
  • Silver increased 1.4% to $23.47 (up 0.7%).

Gold

Highlights

  • Indian buyers stepped back from the gold market overnight citing expensive prices and fear of rising rates.
  • Friday’s fall in the S&P 500 to a 5-week low gave safe-haven demand for precious metals a boost. However, higher global bond yields Friday limited gains in gold.  
  • Gold is highly sensitive to the rates outlook as higher interest rates raise the opportunity cost of holding non-yielding bullion and dent its appeal, and vice versa.

“China’s central bank said… it had added 32 tonnes of gold worth around $1.8 billion to its reserves, the first time it has disclosed an increase since September 2019. The additions bring China’s reported holdings at the end of November to 1,980 tonnes, worth around $112 billion. China has the world’s sixth-largest official national gold reserves after countries including Russia, Germany and the United States, which is the biggest with 8,133.5 tonnes… The World Gold Council (WGC) said last month that central banks globally bought 399 tonnes of gold in the third quarter of 2022, by far the most ever in a single three-month period.”

December 7 – Reuters (Peter Hobson and Siyi Liu):

“Central banks bought a record 399 tonnes of gold worth around $20 billion in the third quarter of 2022, helping to lift global demand for the metal, the World Gold Council (WGC) said… Demand for gold was also strong from jewelers and buyers of gold bars and coins, the WGC said in its latest quarterly report, but exchange traded funds (ETFs) storing bullion for investors shrank… Buying by central banks in the third quarter far exceeded the previous quarterly record in data stretching back to 2000 and took their purchases for the year to September to 673 tonnes, more than the total purchases in any full year since 1967…”

November 1 – Reuters (Peter Hobson):

Technical

Gold futures successfully back tested the median after another rejection at the Tenkan (orange) moved towards the flat cloud and twist. Needs to get impulse off this ABC so double bottom gains more weight and it follows silver break higher. The yellow metal is consolidating after it accelerated after breaking the weekly triangle higher. Gold has bounced after support at its uptrend line since the August 2021 bottom and Kijun. To be bullish we need to stay above the triangle. Murrey Math resistance, watch Fibs & Chikou.

Gold Weekly
Gold in Perspective

Silver

Highlights

  • Silver ETF holdings declined by 1.7 million ounces Thursday and that decline was the 3rd straight daily decline.
  • Not surprisingly, the swift gains in silver have resulted in a very aggressive corrective setback with investors above $24.00.
  • Signs of low supply also supported prices, as New York’s COMEX inventories fell 70% in the last 18 months to just over 1 million tonnes. London Bullion Market Association stockpiles fell for the 10th straight month to a record-low 27.1 thousand tonnes in November.

Technical

Silver bounced off the bottom trend line and was energizes in the sphere of influence. Back over 50wma after spitting tenkan, now providing support after reversed. Closing under outer channel which is now resistance. Major support is 50wma and tenkan.

Silver Weekly Outlook

Lumber

Lumber prices were a leading indicator of the supply-chain problems and inflation that followed pandemic lockdowns. They are a leading indicator for the strength of the home building industry.

Highlights

  • Lumber futures have collapsed since high in early March giving back all of the 2021 and 2022 rally and some.
  • Chicago lumber futures fell under the psychological $400 per thousand board feet mark, down more than 70% since their March peak of around $1,450, as higher interest rates continued to depress real estate activity.
  • The Federal Reserve’s aggressive tightening cycle has briefly pushed 30-year mortgage rates to levels not seen since 2001, leading to slower home construction and souring sentiment among homebuilders.
  • The price keeps drifting lower despite expectations low inventories and diminished production have put a floor under prices.
  • The war in Ukraine and the tightening sanctions against Russia and its ally Belarus, which account for more than 10% of the global export of lumber, have squeezed global supplies.
  • Sawmill curtailments, with Interfor, Canfor, and West Fraser Timber announcing cutbacks, added to concerns about tight supplies.
  • On-the-spot wood prices have plunged, too. Pricing service Random Lengths said Friday that its framing composite index, which tracks cash sales is down from $1,334 in March, just before the Federal Reserve raised interest rates for the first time since 2018.
Lumber Futures

Grains

Wheat

Highlights

  • Wheat futures higher for the week but lower Friday as funds continue to be short Chicago wheat on slow demand for US wheat and chatter of higher Russia and Australia supplies.
  • Dry Argentina and US south plains weather is offset by concern about a global recession as central banks hike rates.
  • The harvest for top exporter Russia was the highest on record in the current marketing year, extending competition into North America.
  • Wheat shipments from Ukraine continued after Russia agreed to extend the UN-brokered deal that guarantees a trade corridor for vessels carrying Ukrainian grain in the Black Sea for another four months, significantly reducing shortage concerns.
  • Russia the dominate seller in global Wheat trade last week, discounting prices to do business.

Technical

Wheat closed under the breakup level in August and 0/8 giving back up the whole October rally. Resistance is now the tenkan and the 50 and 61.8% Fibs. It had been drawn higher by the flat weekly cloud and supported by 0/8 which held. The contract keeps failing to stabilize after it continued its sharp impulsive collapse. This came about after a failure at retesting the 8/8 move and high after it spat 8/8, and the minimum target. It had completed a measured 4/8 correction off highs then broke key support at 38% then 50% and 50wma confluence in the freefall.

Wheat ETF WEAT

Full Report:

Corn

Highlights

  • Corn futures ended up 1.48%. Lack of US farmer selling and dry Argentina weather offers unseasonable support.
  • Slow demand for US export and slowing demand for US ethanol and feed use offers resistance.
  • US corn export commit is 48 pct lower than last year at this time.
  • Argentina corn planting is behind average. Crop is rated 18 pct G/E vs 83 ly.
  • Brazil Dec corn exports were 6.8 mmt vs 3.4 ly.
  • US Ag Attache est Ukraine corn crop near 23 mmt vs USDA 27.
  • USDA est Ukraine corn exports near 20 mmt vs 17.5. Ukraine has left 9 mmt of corn still in fields.
  • Brazil is expected to produce a record 126 million tonnes in the current marketing year, 9% higher than the previous period, according to the USDA’s Global Agricultural Information Network report.
  • Strong supply is also expected from Ukraine as Russia agreed to extend the UN-brokered deal guaranteeing a safe trade corridor for vessels shipping grain out of the Ukrainian Black Sea ports. Besides permitting exports, the resumption of trade enables Ukraine to free up important storage space in silos as the harvest for the 2022/23 marketing year continues.

Technical

Corn earlier flowed lower with last week’s price action failing at the Kijun and the 7/8 near the base of the weekly cloud to under the 50wma. Corn came back to retest those levels to hold just under them. Earlier in the year Corn had topped out at the highest since 2012 in Chicago at +1/8 and corrected with impulse back to break the Tenkan which it swiftly did a spit of a spit after bouncing off 720, which also the price successfully retested the high from April 2021. From here we saw Tenkan fail again. Which is back where we are.

Corn Futures Outlook

Full Report:

Soybeans

Highlights

  • Soybeans and soymeal ended lower on the week with Soyoil higher. Soybeans and soymeal were supported late by dry Argentina weather.
  • Soymeal gained on soyoil on more liquidation of soyoil share.
  • Matif rapeseed prices are lowest since the last week in 2021. G
  • Global fats and oil production is estimated near 252.3 mmt vs 245.4 ly.
  • Consumption is 251.8 vs 241.9 ly. End stocks are est near 34.3 vs 33.7 ly. Palmoil production is 80.3 vs 77.3 ly. Use is up 8 pct vs last year at 80.0 mmt. End stocks are 15.7 vs 15.1 ly.
  • World soyoil production is 32.2 vs 31.0 ly. End stocks 6.3 vs 6.2 ly.
  • World soymeal production is 254.3 mmt vs 249.1 ly. End stocks 9.0 vs 8.3 ly.
  • Soybean futures up to SA weather and China soybean demand.
  • Fresh projections from the USDA’s WASDE report pointed to higher demand from major producers, as increased export sales from Argentina outweighed slower sales from Canada and Paraguay.
  • To add to bullish pressure, output for other vegetable oils was revised lower, offsetting higher projections for global soybean output due to strong production in India and Ukraine.

Technical

Soybeans after it rejected new lows at the bottom of trendline finally got the legs to break above the 50wma. The 50 wma and the tenkan are both under the Kijun providing heavy resistance. We sit near the January breakup. The weekly cloud and Murray mingle around the $14.9/bushel benchmark.

Recall beans broke down from the bull pennant framed by +4/8 and +1/8 with the Kijun unable to sustain support right at the breakout. Support at the 50wma gave way to under the futures pivot at $15/bushel benchmarks and at the close of the week was a magnet to the recovery bounce. Pressure came from futures spitting the Weekly +4/8 over $17.50/bushel three times. The market needs to rebalance that energy.

Soybeans Weekly Outlook

Full Report:

Energy

For complete Oil and Natural Gas Coverage please visit our dedicated publications ‘Around the Barrel’ and ‘Into the Vortex.’ – Weekly Analysis and Outlook for Energy Traders and Investors

WTI Weekly KnovaWave Shape
US Natural Gas KnovaWave Weekly Grid

BDI Freight Index

Baltic Dry Index Weekly


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