Energy Commentary July 3, 2020

Demand for Petroleum Products has Decreased

July 3, 2020

The latest EIA energy report lists demand statistics for Total Petroleum Products, termed Product Supplied.  It is a measure of overall demand for refined products (Gasoline, Distillates, Fuels, etc.), which had dropped to less than 14.0 million barrels per day.  It had been recovering, but the latest statistic shows a drop in demand.  This may an indicator of decreasing energy demand as a result of the new dramatic increase in coronavirus cases and hospitalizations.

The chart below can be constructed in the Fundamental Analytics platform under Fundamentals > DOE>Total Petroleum Products > Product Supplied > Total US.

Total Petroleum Products

Product Supplied

Latest Data as of Friday, June 26, 2020   17.35 million barrels per day


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The information provided here is for general informational purposes only and should not be considered individualized investment advice. All expressions of opinion are subject to change without notice in reaction to shifting market conditions.

Gold, Silver, and Palladium Commentary July 1, 2020

Gold, Silver, and Palladium Commentary
July 1, 2020

The ratio of the 1-month Gold contract to the 1-month Silver contract (Figure 1) fell from the value last week.  With the front month silver and gold contracts closing yesterday at $18.54 and $1,793, respectively, the gold/silver ratio is now 96.70, up 24% from the its five-year average of 78.  August Gold (Figure 2) moved to the top of the trading range listed for last week while September silver (Figure 3) is up 2.1% since last week’s commentary.   While silver remains in the trading range between 16.5 and 19, the latest rise in silver appears to have occurred on falling open interest, so silver may be slowing its ascent.

 

On 6/30/2020 the August COMEX gold contract (Figure 2) ended the day at $1,800.5, up from $1,782 at the close on 6/23/2020.   Open interest has continued to climb during the same time and is up 2% since Tuesday 6/23/2020.  As we have mentioned over the last several weeks, there is a good case for an increase in the price of gold due to demand for safe-havens due to COVID and other geopolitical issues.   While gold is pushing to the top of its recent trading range, we expect gold will continue to trade in the range between $1,784 and $1,812 for the next 7 days.

 

 

 

Palladium remains essentially unchanged since last week, even though it dipped during the week open interest continues to slowly increase.   As mentioned last week we will continue to watch this trend to see if there may be early signs of a directional move.   Without a clear signal of increasing open interest or news on increased production demand, we expect palladium to continue to trade in a similar pattern for the near future.

 

 

Finally, I leave you with the graph of ratio of copper to gold along with the yearly change in the consumer price index.   While not perfect, there is reasonable correlation between the two and may be useful in signaling rising inflation.  As there are significant discussions surrounding the large influx of easy money by the Fed, inflation, and the price of gold, we wanted to present this chart.   (A similar chart was presented in the 2020 In Gold we Trust report, published in late May of 2020.)   Although it is difficult to see due to the time scale, the ratio is beginning to rise from its low on April 9 of 2020.   While much of this rise may be in the recovering of the price of copper, due to the fall in demand, this may be useful to watch longer term.

 


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The information provided here is for general informational purposes only and should not be considered individualized investment advice. All expressions of opinion are subject to change without notice in reaction to shifting market conditions.

Corn Crop Conditions and Crop Progress are Not Helping Prices

Corn Crop Conditions and Crop Progress are Not Helping Prices
June 22, 2020

This last weekend provided much needed rainfall across the Midwest which will likely improve both crop conditions and crop progress.  As of June 14, 95% of the corn crop had emerged (black line), much ahead of last year’s corn crop progress (red line).  These conditions as well as the decrease in demand due to COVID-19 will continue to pressure prices.

The chart below can be constructed in the Fundamental Analytics platform under Fundamentals > NASS > Corn > Progress > Emerged.


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The information provided here is for general informational purposes only and should not be considered individualized investment advice. All expressions of opinion are subject to change without notice in reaction to shifting market conditions.

Energy Commentary June 25, 2020

Energy Commentary

June 25, 2020

The latest EIA energy report lists US Total Petroleum Oil Stocks (excluding SPR) at 1.45 billion barrels as of June 19, 2020 (green arrow).  As of March 13, 2020 (red arrow), the beginning of the US stay-at-home orders in response to the COVID-19 pandemic, Total Petroleum Stocks were at 1.26 billion barrels.  In the course of about four months, there has been a record increase in stocks to an all-time record high.  Such is the impact of the pandemic on the collapse of demand for petroleum products.  Unfortunately, we believe these record level stocks will remain in the near future, pressuring prices of most petroleum products.

The chart below can be constructed in the Fundamental Analytics platform under Fundamentals > DOE > Crude Oil > Stocks > Total Stocks (Excluding SPR).

Total Petroleum Stocks (excluding SPR)

Latest Data as of Friday, June 19, 2020 1.45 billion barrels

 


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The information provided here is for general informational purposes only and should not be considered individualized investment advice. All expressions of opinion are subject to change without notice in reaction to shifting market conditions.

Gold, Silver, and Palladium Commentary June 24, 2020

Gold, Silver, and Palladium Commentary
June 24, 2020

The ratio of the 1-month Gold contract to the 1-month Silver contract (Figure 1) continued to rise this week.  With the front month silver and gold contracts closing yesterday at $18.05 and $1,772.10, respectively, the gold/silver ratio is now 98.172, down 22% from its all-time high set on 3/18/2020 but rising from its recent low on 6/16/2020.  August Gold (Figure 2) moved to the top of the trading range listed for last week while September silver (Figure 3) is up 2% since last week’s commentary.   While silver appears to be settling back into a trading range between 16.5 and 19, the open interest continues to grow back toward values prior to COVID.  Silver open interest is currently about 17% below pre-COVID values, despite growing 4% in the last week.

On 6/23/2020 the August COMEX gold contract (Figure 2) ended the day at $1,782, up from $1,736.5 at the close on 6/16/2020.   Open interest has continued to climb during the same time and is up 11% since its low for 2020 on 6/8/2020.

As we have mentioned over the last several weeks, there is a good case for an increase in the price of gold due to demand for safe-havens due to COVID and other geopolitical issues.   While gold is pushing to the top of its recent trading range, we expect gold will continue to trade in the range between $1,718 and $1,806 for the next 7 days.

Palladium remains unchanged since last week while open interest increased slowly – about 1% per day.   We will continue to watch to see if this trend continues to see if there may be early signs of a directional move.   Without a clear signal of increasing open interest or news on increased production demand, we expect palladium to continue to trade in a similar pattern for the near future.

Finally, I leave you with an interesting graph to consider.  The graph plots the price of gold with respect to 10-year interest rate divided by the US dollar index, grouped by year.   I created this chart after reading a short paper on valuing gold by Charlie Morris.  You can read the paper by clicking here if interested.   You can see from the graph that while 2020 is tending to follow the overall trend, the 2020 gold price is elevated with respect to historical predictions.


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The information provided here is for general informational purposes only and should not be considered individualized investment advice. All expressions of opinion are subject to change without notice in reaction to shifting market conditions.

Soybean Exports Not Supporting Prices

Soybean Exports Not Supporting Prices
June 22, 2020

As of June 11, 2020, accumulated soybeans for the 2019/2020 market year were at 36.6 million bushels as reported by the USDA Foreign Agricultural Service (FAS).  This number is close to last year at this time, 36.3 million bushels, when exports were impacted by US-China trade tariffs.  With the Phase I deal only partially implemented and the effect of the COVID-19 pandemic reducing demand, export sales are not supporting prices.

The chart below can be constructed in the Fundamental Analytics platform under Fundamentals > FAS > Soybeans > Accumulated Exports.

 


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The information provided here is for general informational purposes only and should not be considered individualized investment advice. All expressions of opinion are subject to change without notice in reaction to shifting market conditions.

PADD 3 Crude Stocks as an Indicator of Crude Price Reversal

PADD 3 Crude Stocks as an Indicator of Crude Price Reversal

June 18, 2020

The latest EIA energy report lists crude oil stocks in PADD 3 at 10-year record high of 303.7 million barrels. PADD 3 is the Gulf of Mexico coast region of Texas and Louisiana, the largest crude oil refining region in the US.  While the PADD 3 region has ample storage facilities to handle the large crude oil stocks, the crude oil run cuts at refineries will increase the crude in storage, backing out imports and pressuring crude prices. We will be monitoring the crude storage levels as a potential indicator of an opportunity to short crude futures.
 
The chart below can be constructed in the Fundamental Analytics platform under Fundamentals > Crude Oil > Stocks > PADD 3.
 
PADD 3 Crude Oil Stocks
Latest Data as of June 12, 2020 – 303.7 million barrels

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The information provided here is for general informational purposes only and should not be considered individualized investment advice. All expressions of opinion are subject to change without notice in reaction to shifting market conditions.

Gold, Silver, and Palladium Commentary June 17, 2020

Gold, Silver, and Palladium Commentary
June 17, 2020
The ratio of the 1-month Gold contract to the 1-month Silver contract (Figure 1) continued to rise this week. With the front month silver and gold contracts closing yesterday at $17.52 and $1,726.30, respectively, the gold/silver ratio is now 98.53, down 21.7% from its all-time high set on 3/18/2020 but rising from its recent low on 6/1/2020.  August Gold (Figure 2) continued to trade sideways while July silver (Figure 3) is descending after reaching a recent peak also on 6/1/2020.  Silver’s decline since June 1st coincided with a 1.5% increase in open interest indicating a small increase in shorts which is being confirmed by the Commitment of Trader data. Silver now appears to be settling back into a trading range between 16.3 and 18.8 waiting for the next catalyst to drive prices.

 

On 6/16/2020 the August COMEX gold contract (Figure 2) ended the day at $1,733, up from $1,721 at the close on 6/8/2020 while for the first time since mid-May, there was a small increase in open interest.  This combined with an increase in implied volatility, over the last three weeks, and skewing to the downside may indicate traders are preparing for retest of the $1,680 area. This taken together with the thesis of the 2015 In Gold We Trust extended report highlighting the tendency for gold to go lower while the gold/silver ratio is increasing, increases the likelihood of short-term selling.  We expect gold will continue to trade in the range between $1,674 and $1,771 for the next 7 days.

 

Palladium was essentially unchanged for the last few weeks while total open interest, as it continues to decline, is doing so slowly.  Without a clear signal of increasing open interest or news on increased production demand, we expect palladium to continue to trade in a similar pattern for the near future.

Finally, I leave you with the PricedInGold.com chart showing GDP in billions of gold grams.   The price of gold began its latest climb in June of 2019, while this chart shows the GDP in terms of gold grams began to decline at the end of 2018.  Even with the FED intervention beginning again in 2019, this chart was declining before gold began its climb.   It seems that increasingly larger injections may be required to maintain a system that depends so much on Fed’s monetization. As gold prices rise, it takes less gold to buy the nation’s GDP, implying an upward trend for gold prices.


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The information provided here is for general informational purposes only and should not be considered individualized investment advice. All expressions of opinion are subject to change without notice in reaction to shifting market conditions.

June WASDE Report Estimates Corn Ending Stocks at New Record High

June WASDE Report Estimates
Corn Ending Stocks at New Record High
June 15, 2020

The June WASDE Report, released last Thursday, estimated for the 2020-2021 market year US ending stocks at 3,323 million bushels, up 5 million bushels from the MAY WASDE Report of 3,318 million bushels.  The Trade estimate for June was 3,340 million bushels, so it was temporarily bullish to prices.  However, because the estimated ending stocks remain at a significant record high, prices retreated on Friday and will remain under pressure.

The chart below can be constructed in the Fundamental Analytics platform under Fundamentals > PSD > Corn > Ending Stocks.

 


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The Fundamental Analytics Team

The information provided here is for general informational purposes only and should not be considered individualized investment advice. All expressions of opinion are subject to change without notice in reaction to shifting market conditions.

Gold, Silver, and Palladium Commentary June 10, 2020

Gold, Silver, and Palladium Commentary June 10, 2020

The ratio of the 1-month Gold contract to the 1-month Silver contract (Figure 1) halted its decline this week.  With the front month silver and gold contracts closing yesterday at $17.83 and $1,716.10, respectively, the gold/silver ratio is now 96.25, down 23.6% from its all-time high set on 3/18/2020.  August Gold (Figure 2) continued to trade sideways while July silver (Figure 3) has paused after breaking out of a channel in the early part of May.   Silver’s recent runup coincided with a 30% increase in open interest, seeming to indicate an increase in net longs.  This was confirmed by commitment of trader data.  As of the first week of June this accumulation has paused while price has declined from its high on June 1, 2020.  Silver now appears to be settling back into a trading range between $16.50 and $19.00, waiting for the next catalyst to drive the metal’s prices.

The Fed’s announcement earlier today that it intends to hold rates near or at zero level supports precious metals’ prices. On 6/8/2020 the August COMEX gold contract (Figure 2) ended the day at $1,721, down from $1,734 at the close on 6/2/2020.  This change has coincided with a continued drop in gold open interest, bringing levels back to those seen in May 2019.  Several articles were written over last month raising concerns about the short positions many banks found themselves in, resulting in some deciding to exit the gold markets.   Any effects of this will need to be monitored in future months.

While unemployment news and market directions appear to be positive, we continue to have reservations about the speed of the recent recovery.  Even though last week’s news and market uptrend are putting downward pressure on gold, we believe the massive stimulus, flattening of the yield curve, and a slower recovery than expected will keep upward or supporting pressure on the price of gold.  We expect gold will continue to trade in the range between $1,665 and $1,750 for the next 7 days.

Palladium was essentially unchanged for the last few weeks as total open interest, while it continues to fall, has slowed its decent.  Without a clear signal of increasing open interest or news on increased production demand, we expect palladium to continue to trade in a similar pattern for the near future.


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The Fundamental Analytics Team

The information provided here is for general informational purposes only and should not be considered individualized investment advice. All expressions of opinion are subject to change without notice in reaction to shifting market conditions.