The story of this week:

 

Iran Holds Crude Oil Prices Near The high

 

It was a volatile week in the commodities asset class with most members moving to the downside. The escalation of the trade dispute between the US and China weighed on prices of agricultural commodities, and the strong dollar added insult to injury for the commodity bulls. The dollar index put in a bullish reversal on the weekly chart for the week that ended on May 17 which could mean that commodities will face more selling next week if the dollar index rises to a new and higher high.

Source: CQG

As the weekly chart highlights, the dollar index fell to a lower low than the prior week and then turned higher and closed above the previous week’s high not far below the level of technical resistance at the April high at 98.085 on the June futures contract. The dollar index settled the week at 97.824.

While the strong dollar and trade concerns weighed on most members of the commodities asset class, the price of crude oil held and posted a gain on a weekly basis.  Source: CQG

As the weekly chart shows, crude oil settled on May 17 at $62.76 per barrel on the nearby June NYMEX futures contract which was $1.05 per barrel above the close on May 10. Brent crude oil did even better as the premium for Brent crude oil over WTI on the July futures contracts moved from $8.91 on May 10 to $9.22 on May 17. The move higher in the Brent premium was the reason for the steady price in crude oil.

Over the past week, attacks on four oil tankers near the Strait of Hormuz and a drone attack on a Saudi pipeline were signs of rising tensions in the Middle East as sanctions on Iran begin to bite the theocracy in Teheran. The US ended exemptions for eight countries that purchase crude oil from the theocracy, and the political temperature across the Middle East has risen. While the market focused on the ongoing trade dispute and the rising dollar over the week that ended on May 17, the more clear and present danger over the coming days and weeks could come from the Middle East which would increase volatility in markets across all asset classes. The rising potential for military action in the most turbulent political region of the world that involves the US and potentially other world powers is a reason to keep tight stops on risk positions and expect price variance to continue over the coming week.

Friday’s economic data continued to point to a strong US economy, and the US and Canada came to a trade agreement that ended tariffs on steel and aluminum.

Highlights in commodities:

 

  • Precious metals move lower led by losses in platinum
  • Copper and base metals remain under pressure, but iron ore and the BDI each move almost 6% higher
  • Oil remains firm on events in the Middle East surrounding Iran
  • Grains rebound led by wheat and corn as soybeans lag over trade- Cotton falls on trade and last week’s WASDE
  • Bullish weekly reversal in the dollar threatens more selling in commodities- Wild price action in Bitcoin as it rallies past $8400 and falls back to under $7200

 

 

  • Gold posts a 0.91% loss on the week
  • Silver moves 2.72% lower as the silver-gold ratio continues to make new highs
  • Platinum falls 5.23% since last week. Platinum was at a $455.40 per ounce discount to gold as the discount widens since May 10
  • Palladium falls by 3.32% for the week
  • May copper declined 1.3% on trade issues and a strong dollar as the price settled below $2.74 per pound
  • May iron ore futures gain 5.97% as Brazilian supply issues continue to support the price of the primary ingredient in steel
  • The BDI continues to move higher and gains 5.95% since May 10
  • Rotterdam coal moves 3.89% lower over the period
  • July lumber falls 9.62% as the price of July futures move towards the October 2018 low at $299.90 which stands as technical support
  • June NYMEX crude oil gains 1.78% since May 10 and was at $62.76 per barrel on Friday as June futures begin to roll to July
  • July Brent crude oil outperforms WTI as it rises 2.04% since the previous report. July Brent was at $72.14 per barrel on Friday.
  • The premium for Brent over WTI in July closes Friday at the $9.22 level up 32 cents since May 10 on turmoil in the Middle East
  • June gasoline moves 2.93% higher while June heating oil futures gained 2.2% over the past week
  • The gasoline crack spread in June was up 4.88% while the June heating oil crack rose 1.82% since May 10 in a sign of continued demand for oil products
  • Natural gas edges 0.46% higher on June futures and closed the week at $2.631 per MMBtu. The EIA reported an injection of 106 bcf into storage on Thursday for the week ending on May 10
  • June ethanol rises 4.69% on strength in corn and gasoline prices
  • July soybeans rebound 1.54% after falling to new lows at under $8 early in the week
  • July corn explodes 8.96% higher since last week putting in a bullish reversal on the weekly chart
  • CBOT July wheat leads grains with a 9.48% gain since last week. July KCBT wheat trading at a 44.75 cents discount under CBOT wheat as KCBT continues to decline versus CBOT wheat which is a bearish sign for the market. The discount rose by 7 cents but traded at over 50 cents during the week
  • July sugar loses 1.45% since May 10
  • July coffee falls 1.98% and remains near the recent low
  • July cocoa moves 1.77% higher as the price closes just above the $2350 per ton level
  • July cotton falls 3.59% since last week’s over 12.5% loss
  • July FCOJ futures up 1.79%, but an attempt at a significant recovery fails and the price ends the week below the $1 per pound level
  • June live cattle move 1.04% lower since last week as selling continues
  • August feeder cattle down 0.90% since May 10
  • June lean hog futures rebound 3.01% over the past week on supply issues in China
  • The June dollar index futures contract gains 0.72% as the index moved towards the April high and puts in a bullish reversal on the weekly chart
  • June Long-Bond futures trading at around 149-23 up 1-09 for the week on risk-off fears over trade
  • The Dow Jones Industrial Average closes at 25,764 on Friday, May 17, down 178 points from May 10. The S&P 500 falls by 0.76% since last week. The VIX moves just 0.08 lower and was trading at 15.96 on Friday.
  • Bitcoin trading at $7,122.62 on Friday up $725.10 or 11.33% since May 10, but falls from highs at over $8400 in volatile trading
  • Ethereum was trading at $233.71 on Friday, up 33.54% since the last report as it moved to catch up with Bitcoin

 

Price Changes for the week:

DBC closes at $15.90 per share, up 21 cents per share since May 10 on strength in energy and the rebound from lows in grain prices

Source: Barchart

DBC is the Invesco DB Commodity Tracking product which represents a diversified basket of commodities futures contracts, has net assets of $1.75 billion and trades an average daily volume of 855,303 shares. The fund summary for DBC states that it holds a diversified group of commodities futures but is weighted towards energy. The average daily volume in DBC and net assets again declined since May 10.

Have a great weekend!

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.