• Record highs in stocks
  • Crude oil moved higher while natural gas corrects to the downside
  • Copper and palladium decline, but gold, silver, and platinum post small gains since last week
  • Grains move lower
  • Cocoa posts a double-digit percentage gain

The story of this week:  

Crude Oil Crawls To The Top End Of The Trading Range

In mid-September, the price of crude oil spiked to a high at $62.74 per barrel on the nearby December NYMEX futures contract. The continuous contract hit $63.38 per barrel, and Brent crude rose to $71 in the immediate aftermath of the drone attack on Saudi oilfields. In the past, the price of crude oil would have doubled overnight if 6% of the world’s supply went offline. However, the growth of US production and US President Trump’s statement that he was ready to release crude oil from the SPR caused the price to run out of steam on the upside quickly after the attack. By the end of September, Saudi production was back at the pre-attack level, sending the price of nearby December NYMEX futures back down to a low at $50.89 on October 3. It was starting to look like crude oil was preparing to do a repeat performance of Q4 2018 when the price plunged from $76.90 in early October to a low at $42.36 per barrel in late December. The price stopped dead in its tracks at the October 3 low, and since then, the price of crude oil has made higher lows and higher highs.

Source: CQG

The daily chart highlights that the price of December futures rose to its most recent high at $57.97 on Friday, November 15. On that day, the price of oil stopped short of putting in a bullish reversal on the daily chart. December futures fell to a lower level than the previous session and closed just below the prior day’s high. Price momentum was in overbought territory at the end of last week, with the relative strength indicator rising. Daily historical volatility at 17.01% declined to the lowest level since May.

Meanwhile, open interest at 2.163 million contracts as of November 14 increased from 2.033 million on October 30 when the price was lower. Rising price and increasing open interest tend to validate a bullish price trend in a futures market. The price of crude oil has rallied on the back of optimism over a “phase one” trade agreement between the US and China. At the same time, at the upcoming OPEC meeting on December 5 and 6, the cartel could decide to trim output further. The current production cut will remain in effect into 2020. With Brent crude oil trading below the low end of OPEC’s preferred range of $60-$70 per barrel over recent months, the cartel could decide to cut production further to support the price of the energy commodity. January Brent futures were trading at around $63.40 per barrel on November 15.

Moreover, Saudi Arabia is looking to roll out an IPO of Aramco. The valuation of the company is a function of the price of crude oil. A move by OPEC to further reduce output could send Brent futures above the $70 per barrel level.

Meanwhile, two other factors support the price of oil in the current environment. Iran remains a clear and present danger to production, refining, and logistical routes in the Middle East. The landscape has been quiet since the mid-September attack on Saudi production, but there are no guarantees that Iran or their minions in the area will not strike again. In the US, the 2020 Presidential election could stand as a referendum on oil production in the coming years. The progressive agenda calls for an end to fracking and significant changes in energy policy. One of the leading candidates to challenge President Trump is Senator Elizabeth Warren, who pledged to end fracking on day one of her administration. An end to fracking would reduce US output, which last week rose to a new record high at 12.8 million barrels per day, according to the EIA. Lower US production could cause the price of crude oil and natural gas to rise in 2021. We could see a return of wide price variance to the energy markets in 2020 that may start to rise and fall with the political polls in the US.

Crude oil has slowly climbed towards the top end of its trading range since early October. I remain moderately bullish on the price of the energy commodity going into the early December OPEC meeting. However, the crude oil market has a habit of taking the stairs higher and an elevator shaft to the downside when corrections occur. Tight stops are a good idea on any long positions in the oil market over the coming weeks and throughout the rest of 2019.

Highlights in commodities:

  • December gold recovers by only 0.38% and settled at $1468.50 per ounce
  • December silver rises 0.74% on the week as the volatile precious metal settled just below $16.95 per ounce
  • Platinum posts a 0.16% gain on the week. January platinum was at a $574.00 per ounce discount to December gold futures, which widened since last week
  • Palladium moved 1.50% lower for the week as it settled at just over $1680 per ounce
  • December copper fell 1.48% as the red metal failed at the $2.70 level
  • December iron ore futures moved 7.30% higher on the week
  • The BDI continued to fall and was 4.48% lower since November 8 and was at the 1364 level
  • January Rotterdam coal moves 0.60% higher since last week
  • January lumber moved 0.51% higher since November 8 to $396.40
  • December NYMEX crude oil moved 0.87% higher since November 8
  • January Brent crude oil moved 1.26% higher since the previous report as Brent outperformed NYMEX crude oil
  • The premium for Brent over WTI in January closes Friday at the $5.42 level up 22 cents since last week
  • December gasoline moved 0.08% higher while December heating oil futures rose 1.56% over the past week
  • The gasoline crack spread in December was 3.47% lower while the December heating oil crack moved 3.44% to the upside since November 8 as products reflected seasonal factors
  • Natural gas fell 3.62% on December futures closing the week at $2.688 per MMBtu. The EIA reported an injection of 3 bcf into storage on Thursday for the week ending on November 8 as the withdrawal season should begin next week
  • December ethanol moves 0.64% higher on the week
  • January soybeans fell 1.37% since last week
  • December corn fell 1.59% on the week
  • CBOT December wheat declined 1.47% since last week. December KCBT wheat trading at an 85.75 cents discount under December CBOT wheat. The discount moved towards the historical norm by 3.00 cents since last week
  • March sugar rose 1.27% since November 8
  • December coffee fell 3.02% on the week
  • December cocoa exploded 10.51% higher since last week to new highs for 2019
  • December cotton moved 0.22% higher since November 8
  • January FCOJ futures increased by 0.20% since last week’s report
  • December live cattle fell 0.13% since last week
  • January feeder cattle were 1.10% lower since November 8
  • December lean hog futures moved 1.44% lower over the past week
  • The December dollar index futures contract fell 0.35% on the week
  • December Long-Bond futures trading at 158-11 up 2-04 for the week as prospects for further Fed rate cuts fall
  • The Dow Jones Industrial Average closes at a new high of 28,005 on Friday, November 15, up 324 points from November 8. The S&P 500 rose by 0.89% since last week. The VIX was unchanged on the week and was trading at around 12.05 on Friday as stocks rise to new highs
  • Bitcoin was trading at $8,500.81 on Friday down $343.55 or 3.88% since November 8.
  • Ethereum was trading at $180.00 on Friday, down 2.43% since the last report

 

Price Changes for the week:

DBC closes at $15.58 per share, down three cents since November 8

Source: Barchart

 

DBC is the Invesco DB Commodity Tracking product which represents a diversified basket of commodities futures contracts, has net assets of $1.37 billion and trades an average daily volume of 1,015,072 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 while the price of the ETF was posted a marginal loss.

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.