Negative Momentum Taking Hold In Key Commodities

Commodities in general continue to find little to cheer about at the moment and this is reflected in our momentum indicator with just three out of 16 commodities holding onto positive momentum. Seasonal slow demand for oil, increased supply of agricultural commodities at a time of tepid growth are some of the current negative drivers. In addition, some renewed dollar strength means that even the metal sector has succumbed to profit taking while we await news from the European Central Bank on Thursday and the US job market on Friday.

The metal sector was supported up until last week by speculation that tapering in the US would be further delayed together with the weakening US dollar. Both of these supports have since then been removed, meaning that copper turned negative and silver may follow suit today. Overall, the sector remains range bound with the range in December copper in particular continuing to narrow with support currently at cents 324.5 per pound being threatened.

The energy sector is a sea of red with WTI crude having shown negative momentum for 35 days since it broke USD 105.25/barrel. Brent crude has seen a significant amount of speculative long liquidation during October which leaves it better positioned to react to price friendly news such as continued supply disruptions in Libya. While supply disruptions remain, the area below USD 106 should provide enough support to retain the price between within its established range which currently offer resistance at USD 110/barrel.

Natural gas is suffering from the outlook for mild November weather which may limit the demand for heating and at the same time increase inventories which are currently above the five-year average. After the gap down in price yesterday and the subsequent move lower the price for December delivery has now move into oversold territory which may halt the slide. The current price of 3.4 is the lowest seasonal price for this time of year since 2008 reflecting the continued strong rise in production together with seasonally higher temperatures.

All three softs — cocoa, coffee and sugar — have been under some selling pressure the past couple of weeks. Coffee has seen selling accelerate with double digit losses seen this past month. The price has dropped to the lowest since 2008 on speculation that Brazil, the worlds largest producer, will see a strong rise in production into 2014 leading to a substantial global surplus. Cocoa and sugar meanwhile have both run into profit taking after a recent strong surge. The bullish story for cocoa remains intact while sugar has to deal with a speculative run up in net-longs which in just two months reached a near record on October 22. Since then the price has dropped by six percent as fundamental news from China (importer) and Brazil (exporter) has become less supportive.