Commodity weekly: Buyers return ahead of key quarter Commodity weekly: Buyers return ahead of key quarter Commodity weekly: Buyers return ahead of key quarter

Commodity weekly: Buyers return ahead of key quarter

Ole Hansen

Head of Commodity Strategy

Summary:  The commodity sector traded lower for a second week but overall the month of June ended with the first gain since last November, driven by some very strong gains during the first half of the month. The Bloomberg Commodity Total Return index which tracks the performance of 24 major commodity futures was heading for a monthly gain of 3%, slightly underperforming the MSCI World stock index. Gains were led by grains and energy as hot and dry weather gave key crops and naturalt gas a boost while a Saudi Arabia supply cut helped put a floor under the oil market. Ahead of the second half we take a closer look at events and developments that may help set the tone and direction for several key commodities.

Global Market Quick Take: Europe
Saxo Market Call podcast

The commodity sector traded lower for a second week but overall the month of June ended with the first gain since last November, driven by some very strong gains during the first half of the month. The Bloomberg Commodity Total Return index which tracks the performance of 24 major commodity futures spread evenly across energy, metals and agriculture was heading for a monthly gain of 3%, slightly underperforming the MSCI World stock index. Gains were led by the grains sector which at one point traded up 20% before ending the month with a 7.5% gain, driven by a battle between deteriorating crop conditions and beneficial rains spiced with wrongfooted speculators.

The energy sector traded higher by 6.5% led by a 13% recovery in US natural gas, while crude oil managed a 3.5% gain within a well-established range where support is being provided by OPEC production cuts and the upside capped by concerns about demand in the world’s two biggest economies. European natural gas prices meanwhile jumped the most since last July as volatility returned with a vengeance amid unplanned supply disruptions, competition from Asia and heat waves. The industrial metal sector managed a small gain with copper trading higher following a roller-coaster month where the direction was dictated by the ebb and flow of news regarding additional stimulus in China. Precious metals recorded a back-to-back monthly loss as the prospect for higher rates in the US lifted real yields across the curve. Finally, the softs sector suffered another monthly loss, led by sugar and coffee as the supply outlook showed signs of improving.

Two major themes continue to drive the bulk of the price action across energy and metals, both industrial and precious. The first is the impact on global growth from combatant central bankers’ continued attempts to curb inflation though rate hikes. The second is China - the world’s top consumer of raw materials – where a sluggish economic recovery continues to puzzle the market while raising speculation the government will have to step in with additional support.

During the past couple of months, the Citi Economic Surprise Index has shown a sharp divergence in economic data surprises relative to market expectations between the US and China. In the US, economic data has surprised to the upside, most recently with jobless claims showing a continued robust job market while Q1 GDP was revised higher due to higher consumer spending. These developments may force the FOMC to continue hiking rates, potentially hurting growth and demand in the process. The result is sharply higher bond yields, fresh dollar strength and a market pricing in additional rate hikes before year-end. In China meanwhile, the demand outlook remains challenged by a sluggish recovery with economic data continuing to disappoint.

The combination of these developments are the main drag on commodity prices, in some cases reducing the focus on medium to long-term price, supporting supply challenges across several key commodities. The third quarter will likely provide some answers, the most important being whether the Chinese government and central bank will initiate further attempts to support the economy. For now, there is a sense that China is in a wait-and-see mode, waiting for the end of July politburo meeting.

Copper: lower on hawkish Fed and China growth concerns

Copper prices traded lower for a second week, hitting their lowest level in more than four weeks as strong US economic data and hawkish comments from several central bank heads led by Fed Chair Jerome Powell capped risk appetite. Apart from growth concerns, the various stimulus measures announced by the Chinese government and the People’s Bank of China, have so far left the market unimpressed by their potential. Helping to cushion the fall – which gained some momentum following the slide back below the 200-day moving average currently at $3.8250 in the High Grade futures contract – has been a continued drop in copper stocks monitored by the major futures exchanges in London, New York and Shanghai. A seventh weekly decline has seen the level drop to 242,000 tons, the lowest since last December.

Additional Chinese stimulus or not, we continue to see a clear path towards higher prices in the coming years as the importance of the green transformation theme and its impact on several so-called green metals will continue to provide a strong tailwind, especially for copper, the best electrical-conducting metal for the green transformation - including batteries, electrical traction motors, renewable power generation, energy storage and grid upgrades. Producers will face challenges in the years ahead with lower ore grades, rising production costs and a pre-pandemic lack of investment appetite as the ESG focus reduced the available investment pool provided by banks and funds.

Having dropped back below the 200-day moving average, copper may settle into a period of rangebound trading while we await further news on Chinese stimulus initiatives, and watch the general level of risk appetite. Key support is the May low at $3.545/lb.

Crude oil: a make-or-break quarter awaits

A quarter that delivered two major OPEC production cuts did not prevent crude oil from extending its run of quarterly losses amid an ongoing rate hike cycle leading to growth and demand concerns. Combined with China’s sluggish economic recovery, the price of Brent remains anchored in the 70’s while OPEC, led by Saudi Arabia, would ideally have liked to see it back to the 80’s. For now, prices remain rangebound with Brent trading within a seven-dollar wide range between $71.50 and $78.50, and after seeing another selling attempt though support run out of energy, prices did rise slightly on Thursday in response to stronger than expected US economic data and a weekly inventory report showing a big drop in crude oil stocks while implied demand for gasoline and jet fuel remain robust.

We still see the potential for the coming quarter either making or breaking the crude oil market. This depends on whether OPEC and the IEA’s lofty demand growth forecasts will be met or whether – as the Saudi unilateral production cut from July tried to preempt – we could see economic activity slow to an extent that prices suffer further declines. It would be interesting to see how OPEC handles such a situation, not least Saudi Arabia. Having already cut production, and thereby giving up market share to support the price, the Kingdom is likely to apply intense pressure on other producers to make additional cuts.

At Saxo, however, we believe a US recession will be avoided and that China will step up its efforts to support the economy, but whether this will be enough to support higher prices through a tightening market remains to be seen. For now, we are left with a market where macro-focused funds once again prefer to trade the oil market from a short perspective as a hedge against further economic weakness.

In the short term, we are watching OPEC’s focus on supply management, which for now has kept the market supported above $70, while an upside break seems equally unlikely if the focus remains on a weakening economic outlook. From a technical standpoint, the $80 area in Brent will offer a great deal of resistance and funds positioned for additional weakness are unlikely to change their negative price view until we see the return of an 8-handle.

Source: Saxo

Gold: Bull versus bear battle raging near support

An impressive bull versus bear battle broke out in gold on Thursday after stronger than expected US jobless claims and GDP data triggered a sell-off below the key $1900 level in cash and $1910 in futures. The break to the lowest level since March, however, saw buyers return and following a battle that saw more than 6 million ounces trade in the August futures contract, the price recovered to force a fresh round of short-covering. In the short-term, the prospect for more US rate hikes combined with rising US real yields to or near cycle highs may pose a continued challenge to gold.

A peak rate scenario will, in our opinion, continue to be the event that triggers the next upward extension in precious metal prices. Given the latest signal from the US Federal Reserve that this timing has once again been delayed, the market response in the coming weeks will continue to be very data dependent – as any signs of economic weakness will impact how the market prices the prospect for rate hikes.

For several reasons highlighted in previous updates and despite the current setback, we maintain a long held positive outlook for gold. For now though, gold remains stuck in a downtrend with a break above trendline, and the 21-day moving average around $1940 needed to change that.

Grains sector: rain and speculative-driven slump

The most intense drought to hit the U.S. Midwest farm belt since 2012 deepened in recent weeks, sapping soil moisture and threatening crop yield potential in the heaviest corn and soybean production areas of the United States. Grain prices nevertheless gave up most of their recent strong gains amid the outlook for a series of rainstorms forecast over the next two weeks potentially stabilizing and improving crop conditions. The +6% rain-driven slump in the Bloomberg Grains Index this past week has likely been accelerated by selling from speculators exiting recently established and now loss-making longs. Apart from watching grain conditions, the next update is due Monday, and the market will also be turning its attention to key acreage and stocks data due on June 30.   

Source: Saxo


The Saxo Group entities each provide execution-only service, and access to analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Inspiration Disclaimer and (v) Notices applying to Trade Inspiration, Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular, no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Trading in financial instruments carries risk, and may not be suitable for you. Past performance is not indicative of future performance. Please read our disclaimers:
Notification on Non-Independent Investment Research (
Full disclaimer (

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Markets or its affiliates.

Saxo Markets
88 Market Street
CapitaSpring #31-01
Singapore 048948

Contact Saxo

Select region


Saxo Capital Markets Pte Ltd ('Saxo Markets') is a company authorised and regulated by the Monetary Authority of Singapore (MAS) [Co. Reg. No.: 200601141M ] and is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms & Risk Warning to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products such as Margin FX products may result in your losses exceeding your initial deposits. Saxo Markets does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Markets does not take into account an individual’s needs, objectives or financial situation.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website are not intended for residents of the United States, Malaysia and Japan. Please click here to view our full disclaimer.

This advertisement has not been reviewed by the Monetary Authority of Singapore.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.