June 20, 2017 – Weekly Commodity (crude below $45, but follow the US/Russia tension)

Commodities didn’t have a good week. The Bloomberg Commodity index dropped to one year lows and Monday the negative momentum doesn’t seem to fade. The best performers were the grains and the worst performers were the soft commodities, but there were significant losses in the energy and metal markets too.

Oil

Drillers added active oil rigs for the 22nd consecutive weeks however only 6 new rigs bringing the total US oil rigs to 747. The US EIA crude inventories declined 1,66mil barrels but the fuel inventories rose despite the summer driving season. According to CNBC eight prominent hedge funds reduced their positions in shale drillers saying they are going to undo the recent recovery in the sector as pumping oil too fast and this will drive the prices lower and lower. After there is an activation of an oil rig it takes approximately 4-6 months to start to pump oil so the increase of rig-count means the US shale oil production will rise at a similar pace in the next 6 months. This means around the year turn the US oil sector will reach 10 mil bpd.

On the other side of the Atlantic in Africa, Libya and Nigeria are aiming to get back to the levels of production before the fights started as both are exempt from OPEC cut agreement. In the Middle East the highly ignored tension by the media between the US and Russians over the downed Syrian plane could bring some upside pressure after the Russians claimed they will stop any coordination with the US coalition and the coalition aircraft will be considered potential targets.

We are at a very important point as the market managed to close below the psychological $45 level.  Technically this can result in a technical selling that can trigger stops below or around $44, however be careful as a return above $45 can give new hopes for bulls.

Corn

Grains had a very good week overall. News about strong Chinese soybean demand lifted the beans and with it the whole sector. The hot weather in the US Midwest raises more and more talks about its impact on the quality of the crops, and this could easily result in a lower ending stocks than estimated by the USDA. More clarity we will get from the US crop progress report.

Technically the corn futures broke out from triangle formation a week ago however after the short squeeze dropped back and retested the upper trend line of the triangle. Last week however prices turned north again so trader needed to jump back to the game if their stops were hit.

Sugar

The lowered fuel prices in Brazil are pushing the sugar lower as bears are feeling stronger and stronger. The weaker gasoline prices mean lower ethanol prices. During the ongoing Cane Crush season this is very important as Sugar mills are deciding whether to produce ethanol or sugar and still sugar means bigger profits. Tuesday the data from key sugar producing region of Centre South showed again higher than expected sugar production. However the short positioning is increasing that there were some speculation of potential short squeeze, but we believe the right time did not come yet although the current positioning is unusual.

Technically the market is ahead of the 12-13 cents target range and nothing seems to stop the bulls unless there is a weather shock on the way.

Good Luck and remember to watch your risk and be consistent

Mr. Tech Man

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