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  • Stocks back off during the week
  • Precious metals rally across the board, silver continues to lead the way
  • Crude oil moves towards $30 per barrel on better fundamentals- Products lag and natural gas and ethanol prices decline
  • Grains lower in post-WASDE trading
  • Digital currencies retreat after Bitcoin rejects the $10,000 level

 

The story of this week:

Weakness in oil products- A warning sign for crude oil as it approaches $30 per barrel

The economic data continues to be lousy over the past week. Another nearly three million people applied for first-time unemployment benefits. More than 36 million people in the US have lost jobs since March. On Friday, industrial production data showed an 11.2 % collapse in April. A record decline in manufacturing pulled down the economic indicator as factory closures and falling demand for energy weighed on the industrial production.

Meanwhile, crude oil had a bullish week with the price moving towards the $30 per barrel level. The expiring June NYMEX futures contract fell to a low of $6.50 per barrel on April 21.  Less than one month later, on May 15, June futures settled at $29.43, with the active month July contract at $29.52 per barrel.

Crude oil rallied as the fundamentals for the energy commodity improved. The Saudis announced another one million barrel per day cut in daily output starting on June 1. Other producers in the Middle East are also trimming their production. According to Baker Hughes, the number of rigs operating in the US dropped to 258 as of Friday. Last year, the number was 544 higher at 802 rigs. The EIA reported its first decline in crude oil inventories since January. The amount of petroleum in storage in the US fell by 700,000 barrels for the week ending on May 8. Falling production provided support for the price of NYMEX futures.

Source: CQG

The chart of July NYMEX futures shows the price was trading at its highest level since mid-April, before the crash that took the May contract into negative territory.

Meanwhile, in a sign that crude oil futures could be extending to an unsustainable level, oil products have been lagging the price of the energy commodity. Gasoline took a back seat to crude oil since May 11. Heating oil futures had been Since late April.

Source: CQG

The chart of the July gasoline processing spread shows that it dropped from a high of $15.46 on May 11 to below $11.70 as of May 15.

Source: CQG

The July heating oil crack spread, which serves as a proxy for other distillate products, fell from $16.82 on April 30 to below $11 at the end of this week.

The weakness in crack spreads could be a sign of falling demand and oversupplied conditions in the oil product market. Since crude oil is the main ingredient in gasoline and distillates, the weakness in the refining margins could be telling us that crude oil futures may run out of upside steam at the $30 per barrel level. Keep an eye on the crack spreads as they often provide a valuable clue about the path of least resistance for the price of crude oil.

Highlights in commodities:

  • June gold rose 2.47% on the week, settling at $1756.30 per ounce
  • July silver soars 8.19% as the precious metal settled at $17.07 per ounce on May 15
  • July platinum gained 3.52% on the week. July platinum was at a $939.20 per ounce discount to June gold futures, which widened slightly since last week
  • June palladium rose 2.02% and settled at $1,857.90 per ounce. Rhodium rose $1000 per ounce to a midpoint of $6,000 over the past week
  • July copper was 3.14% lower to the $2.3305 level since May 8
  • June iron ore futures moved 6.09% higher over the past week
  • The BDI continued to add to losses as it fell 23.54% since May 8 to the 393 level
  • July Rotterdam coal declined 0.91% since last week
  • July lumber was 5.48% lower since May 8 and was at the $345.00 per 1,000 board feet level
  • June NYMEX crude oil rolled to July and moved 13.36% higher. The July contract closed the week at $29.52 per barrel
  • July Brent crude oil rose 5.16% since last week
  • The premium for Brent over WTI in July closed Friday at the $3.08 level as the spread moved $1.74 lower since last week
  • June gasoline rose 2.04% while June heating oil futures posted a 5.88% gain over the past week
  • The gasoline crack spread in June was 19.36% lower since last week. June heating oil cracks moved 30.17% lower since May 8 as gasoline and heating oil underperformed crude oil
  • Natural gas plunged 9.71% on June futures closing the week at $1.646 per MMBtu after making a new low at $1.595 during the week. The EIA reported an injection of 103 bcf into storage on Thursday for the week ending on May 8
  • June ethanol fell 5.23% on the week
  • July soybeans moved 1.41% lower since last week in post-WASDE trading
  • July corn was unchanged on the week
  • CBOT July wheat fell 4.17% since last week to the $5 per bushel level. July KCBT wheat trading at a 48.00 cents discount under July CBOT wheat as the discount moved away from the historical norm by 6.00 cents per bushel since last week
  • July sugar rose 0.87% since May 8 and closed at 10.38 cents per pound
  • July coffee posted a 4.30% loss since last week
  • July cocoa edged 0.04% lower since May 8
  • July cotton rose 3.52% since last week as the fiber futures were at the 58.25 cents per pound level
  • July FCOJ futures rose 3.43% since the previous report to $1.2355 per pound
  • June live cattle moved 2.48% higher since last week
  • August feeder cattle fell 4.29% since May 8
  • June lean hog futures were 6.20% lower over the past week
  • The June dollar index futures contract rose 0.67% on the week to 100.434
  • June Long-Bond futures were trading at 180-26 up 1-05 for the week
  • The Dow Jones Industrial Average closes at 23,685 on Friday, May 15 down 646 points from May 8. The S&P 500 fell 2.26% since last week. The VIX was trading at around 31.89 on Friday up 3.91 on the week as stocks moved lower
  • Bitcoin was trading at $9,340.16 on Friday down $604.86 or 6.08% since May 8
  • Ethereum was trading at $194.96 on Friday, down 8.59% since the last report

 

Price Changes for the week:

 

DBC closes at $11.20 per share, down five 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 $754.70 million, and trades an average daily volume of 1,705,130 shares. The fund summary for DBC states that it holds a diversified group of commodities futures but is weighted towards energy. The average volume fell, net assets were steady over the past week, and the price of the ETF edged lower.

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.   

                                                         

 

 

 

 

 

 

 

 

 

 

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