Soft commodities provided some fireworks with drought in Texas and the impact of the first Atlantic storm of the season driving cotton to a four-year high before being capped by worries that a trade war with China could negatively impact US exports. The several months long rally in cocoa has run out of steam with speculative longs heading for the exit after concerns about tighter supplies from producers began to ease.
The grain sector also retraced some of its recent strong gains with emerging global trade tensions potentially threatening exports. Mexico and China are the biggest buyers of US-produced corn and soybeans. Adverse (dry) weather around key growing regions from Australia to Russia, Europe, and not least the US is likely to provide some underlying support. Position adjustments from hedge funds holding the biggest seasonal net-long since 2014 are likely to provide plenty of volatility in the weeks ahead as they add and reduce positions in response to market developments.
Crude oil, led by Brent, has recovered some of the steep losses that followed the previous week’s announcement from Russia and Saudi Arabia that they were considering lifting production. This primarily came about to replace the involuntary loss of approximately 600,000 barrels/day from Venezuela and Angola since the current production cut deal was introduced at the beginning of 2016.
In addition to Saudi Arabia and Russia, only Kuwait and the UAE are currently able to contribute with higher production and this could potentially see some intense discussions at the June 22 meeting in Vienna, not least from countries currently not able to increase production. Apart from 90 minutes on June 14 when Saudi Arabia and Russia’s finest football players meet at the opening game at the 2018 World Cup in Moscow, these two countries have played like one team since late 2015.