WCU: Silver outshining gold; near-term direction of crude oil is lower

WCU: Silver outshining gold; near-term direction of crude oil is lower

Baku, Azerbaijan, Apr. 19


By Ole Hansen, Head of Commodity Strategy, Saxo Bank

The commodity complex rose for a second week with support from multiple sources helping to offset a stronger dollar.

China's trade and growth data both pointed towards a stabilizing, but still debt fueled economy. This helped support industrial metals while also giving grains a boost due to strong demand for soybeans.

Crude oil reached a four-month high before suffering losses ahead of the weekend meeting in Doha. Brent crude oil has rallied more than 60% from its January low. The latest support, apart from a continued slowdown in US production, came from the International Energy Agency, which in its monthly report said that the global market could almost balance before year-end.

Silver, which for the past month had seen increased demand from investors through exchange-traded products, took off and in the process left gold behind. Silver's use as an industrial metal on the back of improving Chinese data and its historic cheapness relative to gold was the main driver behind the continued demand.

Gold continues to settle into the range that has prevailed for the past couple of months. During this time, holdings in exchange-traded products backed by gold have stabilized following the big gold rush at the beginning of the year. After failing to make a clean break above $1,255/oz, a stronger dollar helped pull it lower and currently gold is stuck in a range where support can be found at $1,210/oz.

Following the strongest start to a year in decades, however, the rally has halted and this has supported a move towards focusing on silver instead. Since early March, the demand for silver ETP's has been very strong (with gold stabilizing). The trigger for the outperformance seen this week came from Chinese data and the technical break down in the ratio. Silver, contrary to gold, has many industrial uses that account for more than half of annual demand. As a result, silver has now overtaken gold as the best performing precious metal this year. It also means that a technical break higher for silver itself or lower on the ratio is required to attract further momentum buying.

Crude oil reached a new high for 2016 before nervousness ahead of the Doha freeze talks on April 17 helped trigger some profit taking. US inventories reversed the surprise decline from the previous week but support continued from another weekly decline in production.

Ahead of the Doha talks, Bloomberg reported that tanker-tracking data had found that Iran may have increased its shipments so far this April by more than 600,000 b/d to more than 2m b/d. if confirmed Iran has singlehandedly offset the entire US production decline to date.

My comment to Bloomberg was that "Iranian volumes highlight that a rebalancing of the market will have to come primarily from countries outside Opec, provided that crude prices don't rise too far. If Iran can keep up sales of that magnitude during the coming months when supply disruptions from northern Iraq and Nigeria begin to fade, we may have to look a bit further out for that rebalancing."

A sharp reduction of excess supply does, however, come with a disclaimer about price. If the price of oil continues to rally from here it would eventually negatively impact the current production slowdown.

Increased hedging activity from producers could indicate that some are once again able to breathe and are desperate to rebuild their shattered balance sheets by steadying production. The number of outstanding futures contracts on Brent crude has reached a new record on increased positioning from hedgers and speculators.

The open interest on both WTI and especially Brent crude oil futures contract (as seen above) have been rising, which indicates increased activity from funds and/or increased hedging by producers. The fact that Brent crude has seen the biggest jump could be a result of the recent collapse in the prompt contango spread that has reduced the pain of holding and rolling a long position.

The Doha meeting has concluded with a resounding "No Deal". Saudi Arabia's insisting on Iran being part of a freeze deal seems to have been the trigger behind the failure.

Opec has once again been high on promises but low on delivery as politics once more got in the way. A "consultation" period (or buying more rebalancing time) among producers lasting until June has now been announced.

In my preview last week, I wrote that the game changer in the oil market these past few months has come more from the shale oil fields of North America and other high-cost producers than the producers meeting in Doha.

With a record long position in Brent and a 11% jump in WTI longs last week the near-term direction is lower.

A lower price will help speed up the rebalancing even further so i do not expect a major decline but the record long will undoubtedly have to be adjusted. I stick to $35-$45 as being my preferred range for Brent crude this quarter.

Georgian President appreciates EU support
Georgian President appreciates EU support
OECD recommends Georgia to support land registration reform for increasing FDI-SME linkages
OECD recommends Georgia to support land registration reform for increasing FDI-SME linkages
Georgia to receive first doses of COVID-19 vaccine via Covax platform in February
Georgia to receive first doses of COVID-19 vaccine via Covax platform in February
Loading Bars
Hungary interested in including Azerbaijani gas in country's future energy mix - ambassador (INTERVIEW)
ExxonMobil to cut 7% of its workforce in Singapore
2021 Emmy Awards to be held in September
Ireland to re-establish diplomatic presence in Iran
Azerbaijan to contribute to development of CE work on organizing AI security
Biden takes steps to help Merck boost Johnson & Johnson COVID-19 vaccine supply
US Department of Commerce blacklists 14 entities in Russia, Germany, Switzerland
Chinese embassy opposes Indian media's allegation on cyberattacks
OPEC sees positive oil market outlook, continued downside risks
Iran's CBI discloses number and value of exchanged checks
Italian Parliament demands provision of maps of mined areas of Azerbaijan (PHOTO)
AZAL Announces Conditions for Rebooking Tickets for Flights Canceled due to COVID-19 Pandemic
Singapore's manufacturing PMI falls to 50.5 in February
Promise to provide countries with necessary vaccines within COVAX initiative is not fulfilled - State Agency of Medical Insurance
Parliament head to support all joint efforts for new constitution
Georgian President appreciates EU support
Macron to hold phone talk with Iranian counterpart over JCPOA
OECD recommends Georgia to support land registration reform for increasing FDI-SME linkages
Turkmenistan reveals schedule of intercity buses
Azerbaijan's State Tax Service registers Fuzuli Airport LLC
Azerbaijan felt Turkey's support not only during Karabakh war but throughout history - Minister
Int’l Model Non-Aligned Movement Simulation Exercise underway - Azerbaijan Foreign Ministry
Azerbaijan, Germany interested in increasing mutual trade turnover - Deputy minister
Iran's Energy Exchange announces products to be on sale on March 3
Azerbaijani State Agency of Automobile Roads talks about repair and construction on roads
Azerbaijani Finance Ministry places medium-term bonds at auction
Azerbaijan shows footage from Ucbulag village of Fuzuli district (PHOTO/VIDEO)
Georgia to receive first doses of COVID-19 vaccine via Covax platform in February
Irrigation systems to be put into operation in Iran’s agricultural sector
Azerbaijani Defense Ministry shares updated list of martyred servicemen in Second Karabakh War
Larization of loans increase in Georgia
Georgian AgroZone products to be exported abroad from Kutaisi Airport
Turkish specialists together with Azerbaijan’s AzTV to shoot film in Nagorno-Karabakh region
Ro-Pax ferry vessel commissioned by Azerbaijan's president - video report
Azerbaijani winemakers’ production down in 2020
Azerbaijan, Tajikistan discuss development of tourism co-op
Georgia’s banking sector begins year with profit
France uses only quarter of Astrazeneca vaccine doses
Uzbek-Korean JV to buy spare parts for electric actuator via tender
Kazakhstan identifies priority tasks to develop agriculture by 2025
Georgian Ministry of Finance sees decrease in mobilized income tax
Likelihood of interest rate decrease in Azerbaijan for 2021 seems minimal - Unicapital
Azerbaijan's AzNET segment neutralizes more phishing attacks in Jan.2021
Azerbaijan's new borrowings not to raise debt burden - Gazprombank
Azerbaijan studying Turkey's experience to strengthen institution of primary health care (PHOTO)
Uzbekistan, Azerbaijan talk big potential for co-op in agriculture
Hertz set to ride out of bankruptcy with $4.2 billion from investment firms
Money transfers via int'l payment systems down in Kazakhstan
Azercell obtains yet another award on customer experience management
German companies may take part in restoring Azerbaijan's liberated lands - ambassador
Excavation of well in Iran's Ahvaz oil field launched
Uzbekistan considers resuming air communication with Russia
Bahar Azadi gold coin price again falling in Iran
Kazakhstan, Georgia resume mutual flights as COVID-19 restrictions lifted
Uzbekistan eyes expanding mutually beneficial relations with foreign partners
Azerbaijan and Germany to continue co-op on improving qualifications of managers
Generation data of Iran's Shahid Rajaee TPP announced
Lithuania supports subsidizing renewable energy projects in Georgia
Demand for pick-up trucks in Azerbaijan may increase - expert
Kazakhstan boosts agriculture output, sets up tasks for sector's dev't
Turkey issues Jan. 2021 data on passenger traffic at Istanbul Airport
Azerbaijani company discloses output of primary aluminum
Spain's jobless hit four million for first time in five years as pandemic curbs bite
Volume of exports from Iran's Qom Province increases
S.Korean oil company holding exploration on land plots in Uzbekistan
EU executive says joint vaccine strategy not unravelling
Azerbaijan, Germany discuss expanding cooperation in oil & gas sector
Azerbaijani business environment entering recovery period - Minister of Economy
Iran's awaits action from US over JCPOA
Indonesia says identifies two cases of British COVID-19 variant
Europe – Iran held business forum to expand trade
Uzbek-Russian JV completes geological exploration at Akchalak investment block
Azerbaijani electricity supplier first to use special-purpose UAVs
Iran reaches gas export growth
Turkish president instructs to shoot TV series about Karabakh war victory
Cargo, passenger traffic via Turkish Sabiha Gokcen Airport down from early 2021
Germany to extend coronavirus lockdown until March 28
Iran unveils data of imports, exports through Anzali port
Azerbaijan records notable growth in population's US dollar demand
Iran reveals COVID-19 data for March 2
Azerbaijani Association of Travel Agencies and Association of Travel Bloggers sign agreement of understanding (PHOTO)
Union ministers Amit Shah, S Jaishankar get Covid-19 vaccine after PM Modi
Azerbaijan to hold new auction for public property facilities
Azerbaijan in cooperation with Turkey to make movie about Karabakh War
TV, radio channels to be non-accredited for 2021 Formula 1 Azerbaijan Grand Prix
Iran's Changuleh - 'a very complex oil field', says official
Proven gas reserves not adequate to furnish rising demand
BHOS launches next ‘Business Education for Engineers’ course
Iran to build combined cycle power plan in Mazandaran Province
Azerbaijan confirms 143 more COVID-19 recoveries
Gold, silver prices down in Azerbaijan
Nitin Gadkari: Despite Covid, highway construction at a record of over 32 km a day
IAF To Take Part In Multinational Exercise "Desert Flag" With France, US In UAE
Uzbekistan reports increases in gasoline price
Uzbek ministry to purchase computer equipment via tender
Uzbek commodity exchange reports volume of RON-80 gasoline sold
Russia's Novak preparing for OPEC+ meeting on March 4
UK's European Technology Development Ltd interested in doing business in Turkmenistan
Iran discusses potential of power transmission lines to neighboring countries
Uzbek commodity exchange reports volume of goods sold for Feb. 22-28
All news