Commodities Recap For The Week Of October 5, 2018

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Includes: BNO, BOIL, DBE, DBO, DCNG, DGAZ, DNO, DTO, DWT, FUE, GAZB, GRN, JJE, KOLD, OIL, OILD, OILK, OILU, OILX, OLEM, OLO, ONG, RJN, SCO, SZO, UBN, UCO, UGA, UGAZ, UHN, UNG, UNL, USAI, USL, USO, USOD, USOI, USOU, UWT, WTID, WTIU
by: Andrew Hecht

Summary

Sugar recovers by over 12.5%.

Coffee rallies over 6%.

Natural gas, WTI, and Brent crude oil make new contract highs.

Precious metals continue their slumber.

Most commodities post gains despite a stronger dollar.

The story of this week:

Crude Oil- Brent makes a new high and BNO soars

While the prices of many commodities moved lower over the summer over the prospects of higher interest rates in the United States and a stronger dollar, the price of crude oil did not falter all that much. While the energy commodity experienced some temporary weakness in mid-August which was the time when the dollar index hit its most recent high, the price of nearby NYMEX futures only managed to fall to lows of $64.43 per barrel, and Brent’s low was at $70.30 per barrel. In mid-August copper fell to its lowest price since June 2017 and gold moved to it low since January 2017. Silver plunged to under $14 per ounce, a level not seen since early 2016 and platinum fell to a decade and a half bottom. The price action in the commodities asset class was ugly, but crude oil did not fall to a new low for 2018.

Source: ICE/RMB

As the weekly chart of Brent crude oil shows, the price of the energy commodity found a low at $70.30 and has rallied to its most recent high at $86.72 this past week, a rise of 23.4%. The price of oil rose as economic conditions increased demand for the energy commodity, OPEC did not increase output at their recent unofficial gathering in Algeria, and sanctions on Iran that will take effect on November loom large over the market. Meanwhile, the United States Brent Oil ETF product (BNO) has done an excellent job tracking the price action in the ICE futures market.

Source: Barchart

BNO fell to a low of $19.72 per share in mid-August but rose to a high of $24.41 this past week and closed at the $23.75 level. BNO rallied by 23.8% as the ETF kept pace with the price action in the Brent crude oil market. BNO’s fund summary states:

The investment seeks the daily changes in percentage terms of its shares’ per share net asset value (“NAV”) to reflect the daily changes in percentage terms of the spot price of Brent crude oil. The Benchmark Futures Contract is the futures contract on Brent crude oil as traded on the Ice Futures Europe Exchange that is the near month contract to expire, except when the near month contract is within two weeks of expiration, in which case it will be measured by the futures contract that is the next month contract to expire.

BNO holds nearby Brent futures contracts. While the ETF has an expense ratio of 0.90%, rolling contracts from one active month to then next has benefited holders as the Brent crude oil market is in backwardation. Selling the nearby and buying the next month in a backwardated market results in a credit.

Source: ICE/RMB

While the risk of a correction in the price of Brent crude oil futures rises with the price, the next level of technical resistance stands at the 2014 high of $115.69 per barrel. With Brent crude trading at the $84.60 level on Friday, October 5, the next critical level on the upside is over 36% above the current price.

Other significant moves in the commodities market over the past week include considerable recoveries in the prices of sugar and coffee futures. Sugar posted an over 12% gain on the week while coffee added 6%. Sugar closed the week above the 12.5 cents per pound level for the first time since May on the weekly chart and broke its pattern of lower highs on the active month March futures contract. Coffee was trading around the $1.09 per pound level on Friday, as the futures percolated to the upside throughout the week.

Honorable mention goes to the natural gas futures market which rallied to a new contract high at $3.261 on the November futures contract on low stockpile levels as the winter season approaches. Natural gas closed at the $3.14 per MMBtu level on Friday. Even though the dollar index bounced back above the 95 level, many commodities posted gains on the week. However, action in the copper and precious metals market was not awe-inspiring.

On Friday, the employment data came in below expectations with only 134,000 new jobs created. However, the rate of unemployment fell to its lowest level since 1969 at 3.7% in the United States. Hourly wages rose by 2.8% in the report. The weaker than expected report was likely the result of the weather as Hurricane Florence slowed economic growth in affected regions. The fall in the unemployment rate comes as a result of economic strength and a smaller overall employment pool. However, the data is another sign that the Fed will continue to increase the Fed Funds rate with their next hike coming in December.

Highlights in commodities:

  • Gold posts a 0.79% gain on the week as $1200 remains the pivot point for December futures
  • Silver moves 0.43% lower since the last report
  • Platinum posts a marginal 0.26% gain for the week and was trading at a $381.80 per ounce discount to gold
  • Palladium declines 1.46% on the week and closes at just under $1060 per ounce on Friday
  • Copper bucks the trend in commodities and falls 1.50% the week
  • Iron ore moved 0.93% higher on the week
  • The BDI moves another 1.97% higher since the last report on the back of higher energy costs
  • Rotterdam coal rises 0.44% on the week in sympathy with oil and gas
  • Lumber rises 1.71% on the week and closes at the $350 level on the November futures contract
  • November NYMEX crude oil moved 1.49% higher and makes a new high at $76.90 before retreating
  • December Brent crude oil moves 1.50% higher to the highest price since 2014 as Iran remains in the background
  • The premium for Brent over WTI in December closes the week at the $9.84 up 20 cents on the week
  • Gasoline moves only 0.02% higher, but heating oil gains 1.87% since last week on the November futures contracts
  • The gasoline crack spread falls 7.02% while the heating oil crack moves 3.21% higher on November futures as products reflect seasonal influences
  • Natural gas makes a new contract high at $3.261 and gains 4.49% on the November futures contract on the week. The EIA reported an injection of 98 bcf into storage on Thursday for the week ending on September 28
  • Ethanol moves 1.69% higher on the week
  • November soybeans move 2.78% higher on the week after a rally on Friday
  • December corn rises 3.37% on the week
  • CBOT wheat posts a 2.36% gain on the week. December KCBT wheat trading at a 3.25 cents premium over CBOT wheat up one cent from last week
  • March sugar futures explode 12.77% higher on the week
  • December coffee rebounds 6.34% since last week’s report and closed near $1.09 per pound
  • Cocoa moves 1.60% lower on the week
  • Cotton down just 0.35% on the week as the price approaches technical support at 75.11 cents per pound
  • FCOJ futures down 2.98% on the week
  • Live cattle gain fall 0.59% since last week on December futures
  • November feeder cattle up 0.11% since the previous report
  • December lean hog futures move 0.65% lower on the week
  • The December dollar index futures contract moves 0.60% higher as interest rates rise
  • December Long-Bond futures trading at around 137-06 down 3-05 for the week as the implosion in bonds threatens equity markets
  • The Dow Jones Industrial Average closes at 26,447 on Friday, October 5, down just 11 points on the week. The VIX moves 2.91 higher and was trading at 15.03 on Friday
  • Bitcoin closes at $6,552.63 Friday down $111.94 or 1.68% since last week
  • Ethereum moved marginally higher to $222.73 up 0.39% since the last report

Price Changes for the week:

GSG closes the week at $18.42 per share, up 31 cents since last week’s report

Source: Barchart

GSG is the iShares S&P GSCI Commodity-Indexed Trust which represents a diversified basket of commodities futures contracts, has net assets of $1.42 billion and trades an average daily volume of 326,693 shares.

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.

Disclosure: I am/we are long BNO.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: The author always has positions in commodities markets in futures, options, ETF/ETN products, and commodity equities. These long and short positions tend to change on an intraday basis.