Commodities Recap For The Week Of April 24, 2020

Stocks move lower but stimulus continues to hold the market up
Gold higher, but other precious metals prices move to the downside
Crude oil tanks- WTI downs over 32% and Brent falls over 23% since last week. WTI trades negative for the first time in history
Most agricultural commodities post declines
Unemployment continues to rise with 4.4 million more applications for benefits bringing the total to over 26 million over the recent weeks

The story of this week:

Crude Oil Dominated The Week- Three Lessons From The Oil Patch

In life, it is never too early or late to learn. When it comes to markets, the world’s most liquidly traded commodity taught us three significant lessons over the past week. Marc Rich once said that crude oil is like the blood that runs through the veins of the world. The fossil fuel continues to power lives around the globe as it fuels cars, jets, trucks, ships, and provides for many other energy sources. Crude oil is a highly volatile commodity that trades on the futures exchange. The West Texas Intermediate crude oil contract or WTI is the pricing benchmark for approximately one-third of the world’s petroleum. WTI is a landlocked crude oil in the US. Brent is the benchmark for around two-thirds of oil production and consumption. The Brent crude oil price reflects output from Europe, Africa, and the Middle East. Brent crude oil is a seaborne crude oil as it travels around the globe from points of production to consumers.

The demand destruction caused by Coronavirus sent the price of oil reeling over the past months. An unprecedented production cut from OPEC, Russia, and other oil-producing nations did little to slow the descent of the price of the energy commodity. Instead of 9.7 million barrels per day, a reduction of thirty million or more was necessary to balance the supply and demand equation for the energy commodity. Last week, the price of expiring May NYMEX futures fell to a new all-time low below the 1986 bottom at $9.75 per barrel.

Source: CQG

The quarterly chart highlights that the price of nearby NYMEX futures fell below zero to an incredible low of negative $40.32 per barrel. The chart reflecting the price action on April 20 will remain a reminder and a lesson for market participants that take risk in the energy commodity or other markets.

Nearby June futures fell to a low of $6.50 per barrel on NYMEX, and Brent futures reached a bottom of $16 per barrel during the price carnage. June NYMEX futures settled at $16.94 per barrel on April 24 with Brent June futures at the $21.55 level. While the prices fell dramatically from the previous week, both of the benchmarks closed last Friday well above the lows for the week. The price fell as the world ran out of places to store the energy commodity. It moved into negative territory because market participants holding long positions in the expiring May NYMEX contract could not take delivery. There was nowhere to put the oil, and they had to sell their positions into what turned out to be a bearish abyss.

Crude oil taught us three lessons last week. First, the price of a commodity can move below zero when there is nowhere to store the raw material. Second, the risk of a put position on the long or short side of the market is not limited to zero in the commodities market. Natural gas, grains, or other commodities have the potential to trade at negative prices during a deflationary spiral. Finally, and most significantly, any market participant or analyst that says a market can never do something is wrong. Never say never in the world of commodities, and always prepare for the unexpected. One short week ago, the vast majority of market participants would have presented more than a handful of arguments why the price of crude oil could not fall below zero dollars per barrel. Those that put their money where their mouths were would up learning a very costly lesson.

Options traders, ETF and ETN administrators, and issuers, and all market participants are now scrambling to adjust their risk models as crude oil sent a message that zero is not the bottom price for an asset in some environments.

Highlights in commodities:

June gold rises 2.17% lower on the week, settling at $1735.60 per ounce
July silver declines 0.26% as the precious metal settled at $15.445 per ounce on April 24
July platinum moved 1.46% lower on the week. July platinum was at a $961.80 per ounce discount to June gold futures, which widened since last week
June palladium fell 7.41% and settled at $1,972.90 per ounce. Rhodium fell $1500 per ounce to a midpoint of $6,000 over the past week
July copper was 0.89% lower to the $2.3365 level since April 17
June iron ore futures moved 2.03% lower over the past week
The BDI fell 7.44% since April 17 to the 672 level
July Rotterdam coal fell 8.96% since last week
July lumber was 9.69% lower since April 17 and was at the $313.00 per 1,000 board feet level
June NYMEX crude oil fell 32.32% and closed the week at $16.94 per barrel
June Brent crude oil fell 23.18% as landlocked WTI underperformed seaborne Brent because of storage capacity
The premium for Brent over WTI in June closed Friday at the $4.70 level as the spread moved $1.56 higher since last week
June gasoline fell 8.44% while June heating oil futures posted a 25.22% loss over the past week
The gasoline crack spread in June was 79.52% higher since last week. June heating oil cracks moved 11.44% lower since April 17 as gasoline continued to show strength
Natural gas declined 0.89% on June futures closing the week at $1.895 per MMBtu. The EIA reported an injection of 43 bcf into storage on Thursday for the week ending on April 17
June ethanol fell 2.95% on the week
July soybeans moved 0.24% lower since last week
July corn was 2.05% lower on the week- Nearby futures put in a double bottom formation on the long-term chart at the $3.01 level
CBOT July wheat was 0.89% lower since last week. July KCBT wheat trading at a 47.25 cents discount under July CBOT wheat as the discount moved towards historical norm since last week
July sugar fell 7.01% since April 17 and closed at 9.81 cents per pound
July coffee posted a 9.15% loss since last week
July cocoa fell 1.32% since April 17
July cotton rose 5.54% since last week as the fiber futures were at the 55.63 cents per pound level
July FCOJ futures rose 1.78% since the previous report to $1.0860 per pound
June live cattle moved 4.26% lower since last week
August feeder cattle fell 1.56% since April 17
June lean hog futures were 17.84% higher over the past week as the price of pork rebounded on the back of closures in processing plants- Volatility remains high
The June dollar index futures contract rose 0.60% on the week to 100.434 as the index continued to trade around the 100 level
June Long-Bond futures were trading at 182-00 up 1-21 for the week
The Dow Jones Industrial Average closes at 23,775 on Friday, April 24, down 467 points from April 17. The S&P 500 fell 1.32% since last week. The VIX was trading at around 35.93 on Friday down 2.22 on the week as the stock market stabilizes
Bitcoin was trading at $7,559.73 on Friday up $449.64 or 6.32% since April 17
Ethereum was trading at $189.97 on Friday, up 10.64% since the last report

Price Changes for the week:

DBC closes at $10.70 per share, down 74 cents since April 17

Source: Barchart

DBC is the Invesco DB Commodity Tracking product which represents a diversified basket of commodities futures contracts, has net assets of $779.2 million, and trades an average daily volume of 1,856,496 shares. The fund summary for DBC states that it holds a diversified group of commodities futures but is weighted towards energy. The average volume rose over the past week and net assets were steady as the price of the ETF declined.

Please stay safe and healthy during these unprecedented times.

Any investment involves substantial risks, including, but not limited to, pricing volatility, inadequate liquidity, and the potential complete loss of principal. This document does not in any way constitute an offer or solicitation of an offer to buy or sell any investment, security, or commodity discussed herein, or any security in any jurisdiction in which such an offer would be unlawful under the securities laws of such jurisdiction.