Commodities Focus: Exciting week across the board

Industry analyst Rajan Dhall discusses where investors should expect oil, gold and copper prices to move this week.

There was a lot to ponder last week for oil traders with the Energy Information Administration (EIA) report, weather warnings and OPEC chatter. 

The American Petroleum Institute (API) and Department of Energy's (DoE) produced impressive drawdowns, indicating that higher production levels in the states are warranted during the busy summer season. It will be interesting to see the readings over the next couple of weeks. With the US driving season over, stockpiles will surely rise if the US keeps production at 11 million barrels per day (mbpd). 

Last week, reports of supply disruptions due to hurricanes in the US, then downgrading of storm strength caused volatility on oil exchanges. Meanwhile, the EIA stated that Iranian crude production was down 200,000 barrels a day in August compared with July. The agency also lowered its crude oil output prediction for 2018 and 2019. It also raised its price forecasts for WTI and Brent. 

Looking at the WTI price chart below, the weekly candles are still looking bearish with those wicks at the top. Having said that, $70 barrel (bbl) seems to be a magnet, and we have been oscillating around there for 10 weeks.

Past performance is not a guide to future performance

More of the same for copper I'm afraid; it's becoming a struggle to write about anything significant away from the tariffs on a weekly basis, but therein lie the facts. 

Last week started positively as optimism surrounded commodities due to the US and China both saying they would meet again to discuss trade. However, on Friday the financial press reported that the US is set to go ahead and slap another $200 billion worth of tariffs on Chinese goods. 

Copper then reversed all its hard-earned gains and finished the week pretty much where it started at the $2.61 per pound (/lb) area. This week, China warns that if the tariffs are imposed they will not attend the crunch talks. 

Interestingly, demand is still holding at these low levels, perhaps because corporates are able to take advantage of the geopolitical landscape, and developing nations such as China and India still need to purchase copper which is largely denominated in US dollars. 

China has also just suffered from a hurricane of its own and there will be rebuilding work that needs to take place as well as their other ongoing projects - all pointing to demand. 

Past performance is not a guide to future performance

Gold is stuck between a rock and hard place at the moment. 

When stocks rise, gold falls and when stocks fall, treasuries rise as well as the dollar index (DXY) and gold falls. It seems that the yellow metal is out of favour all over. Question is, where do investors find value? 

•    A must-read prediction of future gold price activity

From a price perspective, it seems we are still looking to find a base, and the $1,190 per ounce (/oz) support level could potentially stand its ground. Next week we have the FOMC rate decision where, as we have already mentioned, a 25 basis-point hike is almost fully priced in.  

Forward guidance will, therefore, dictate direction. Any dovish language might cement this base for gold. 

Past performance is not a guide to future performance