COMMODITY MARKETS: METALS AND ENERGY MARKETS IN 2023

COMMODITY MARKETS: METALS AND ENERGY MARKETS IN 2023

Date: January 4, 2023

TREND EXPECTATIONS: UP

Metals: Gold, Silver, Palladium, Platinum, Copper

Energy Products: Crude Oil, Brent Oil, Gasoline, Heating Oil, Natural Gas

• GEOPOLITICS (OIL, NATURAL GAS, GOLD, SILVER, PALLADIUM, PLATINUM): Ongoing war in Ukraine and sanctions against Russia will still have a major impact on the global markets at least in the first part of the year. US-China (two biggest economies in the world) regarding Taiwan issue may escalate in 2023 with a major impact on the global commodity market.
• China's economy begins to reopen after 3 years of Covid isolation. (OIL, GOLD, SILVER, PALLADIUM, PLATINUM) Investors and analysts predict a brighter year ahead after Covid disrupted supply chains and forced stoppages in factories, as the economy recovers and begins to reconnect with the rest of the world.
• RISING DEMAND FOR PRECIOUS METALS ( GOLD, SILVER, PLATINUM, PALLADIUM) - inflation hedge. Interest rate hikes and recession fears should increase demand in precious metals throughout 2023. Despite expectations for inflation to decrease, the majority of economists believe it will remain high during 2023.
• FEDERAL RESERVE POLICY PIVOT (ALL COMMODITIES) - Waning inflation and growing recession-fears have added to hopes that the Fed will be able to ease its pace of tightening which can put pressure on USD and potentially trigger a price recovery in commodities.

ENERGY

CRUDE OIL Current Price: $75.45

• THE US ENERGY ADMINISTRATION REVISES UP OIL PRICE FORECAST FOR 2023. For next year, the agency expects the price of Brent crude to average $95.33 per barrel and WTI to average $89.33 per barrel. The agency forecast that global oil consumption will outpace global oil production IN 2023, which will contribute to increasing oil prices in the second half of the year.
• OPEC PRODUCTION CUTS. OPEC+ agreed in early October to reduce production by 2 million barrels per day from November. The cartel hinted it could impose deeper output cuts to spur a recovery in crude prices.
• RUSSIA EXPECTED TO CUT OIL OUTPUT. Russia may cut oil output by 5%-7% in early 2023, as it responds to price caps on its crude and refined products, and halt sales to the countries that support them.
• BIG BANKS EXPECT PRICE AROUND $100: Goldman Sachs predicts oil at $90 and $95 in Q1 and Q2, respectively. By the end of the year, oil could rise to $105. Morgan Stanley Price Target stands at $110 in 2023. UBS forecasts $107 a barrel. Commerzbank targets $100 a barrel. Bank of America forecasts Oil at $104 a barrel. Deutsche Bank forecasts $100 a barrel in 2023.

Example of calculation based on weekly trend direction for 1.00 Lot1

1. 1 lot is equivalent of 1000 units
2. Calculations for exchange rate used as of 09:40(GMT) 04/01/2023

NATURAL GAS Current Price $3.98

• JPMORGAN: NATURAL GAS MARKETS WILL REMAIN TIGHT THROUGH 2023. Imports cuts from Russia due to the sanctions.- European gas imports from Russia fell from 40% in February to 7.5% in October. (Source: Reuters).
• U.S. LNG EXPORTERS BOOSTED SHIPMENTS TO EUROPE by more than 137% in the first 11 months of 2022 from the same period in 2021. 70% of the U.S. LNG cargoes are now destined to the European market. (Source: EIA) The EU and the US made an agreement for the U.S. to increase that supply to Europe to 50 bct through 2030.
• U.S. INCREASED ITS EXPORT FROM 4.5 bcfd in 2021 to 10.6 bcfd in 2022 and is expecting a further increase to 12.3 bcfd in 2023 when it expects the Freeport export terminal to have resumed operations. (Source: EIA)
• With the absence of import from Russia, the EU will likely find it much more difficult to refill storage to adequate levels ahead of the 2023/24 winter and will heavily rely on imports from the U.S. While Gas storage capacity in the EU is currently 89.6 % full, over 40% of stored gas for this winter came from Russia, despite sanctions and conflict.
• Goldman Sachs bank said that while the first quarter may be rough due to economic weakness in the US and China, scarcity of raw materials from oil to natural gas and metals will boost prices after that.
• Between the year 2000-2022, March tends to be the best performing month for natural gas prices, with an average rise of 8.19%, as countries exhaust their fuel reserves during the winter, and start to replenish them.

Example of calculation based on weekly trend direction for 1.00 Lot¹

1. 1 lot is equivalent of 10 000 units
2. Calculations for exchange rate used as of 09:40(GMT) 04/01/2023

METALS

GOLD Current Price: $1,860

• CENTRAL BANKS INCREASED BUYING AS GOLD A RESERVE ASSET -In the third quarter, official net gold purchases were approximately 400 tonnes, around $20 billion, the most in over a half-century.
• Citi Banks remains comfortable with its previous price outlook keeping the target at $2000 in 2023. Morgan Stanley sees more significant gold price recovery in the second part of the year. Saxo bank says that gold prices could hit $3000 in 2023 once markets realize that global inflation will remain hot despite monetary tightening. Goldman Sachs sees a 30% chance of a recession with substantial rate cuts to zero by 2025 and gold prices spike to $2,250 an ounce.

Example of calculation based on weekly trend direction for 1.00 Lot¹

1. 1 lot is equivalent of 100 units
2. Calculations for exchange rate used as of 09:40(GMT) 04/01/2023

Silver Current Price: $24.17

• Demand for silver is expected to increase significantly due to its application in the circuits and interiors of electric vehicles.
• China's reopening, Fed stance, and global growth are going to be the key drivers of the silver prices.
• Commerzbank sees the price of silver at $25 in 2023, as well as Bank of America and Citigroup.

Example of calculation based on weekly trend direction for 1.00 Lot¹

1. 1. 1 lot is equivalent of 10,000 units
   2. Calculations for exchange rate used as of 09:40(GMT) 04/01/2023

Palladium Current Price: $1,700

• As China re-opens, demand for Palladium should rise. China buys 31% of the world’s Palladium. Russia is the world’s largest supplier and supplies over 40% of the industrial metal.
• TD Securities targets $2,100. Trading economics expects $2,100. ANZ Research sees Palladium at $2,048 in 2023.

Example of calculation based on weekly trend direction for 1.00 Lot¹

1. 1 lot is equivalent of 100 units
2. Calculations for exchange rate used as of 09:40(GMT) 04/01/2023

PLATINUM Current Price $1,100

• The World Platinum Investment Council (WPIC) said that the global platinum market is forecast to be in a deficit of 303 koz in 2023 as global platinum demand is expected to increase by 19% (to 7,770 koz), while supply will increase by just 2% (to 7,466 koz).
• As China re-opens, demand for Platinum should rise. China buys 28% of the world’s Palladium. South Africa is the world’s largest supplier and supplies over 70% of the industrial metal.
• Commerzbank is targeting $1,300 and Bank of America $1,313.

Example of calculation based on weekly trend direction for 1.00 Lot¹

1. 1 lot is equivalent of 10,000 units
2. Calculations for exchange rate used as of 09:40(GMT) 04/01/2023

COPPER Current Price: $3.79

• China's reopening economy in 2023, with fiscal stimulus, represents a potential upside for base metals like copper due to potential increase in construction and manufacturing activity.
• LARGEST IMPORTERS: China is the largest copper importer, controlling a little over 30%. Also, China is the largest consumer of refined copper, being responsible for little over 50% of the market.
• Analysts at Goldman Sachs said they expect copper to be undersupplied in 2023 as China may seek to rebuild depleted inventories which can lead to rise of demand for copper. Additionally, Goldman Sachs argues that green metals – copper in particular – are critical to moving the global economy toward net zero emissions.
• Goldman Sachs expects copper prices of $5.00 and Bank of America $5.46.

Example of calculation based on weekly trend direction for 1.00 Lot¹

1. 1 lot is equivalent of 10,000 units
2. Calculations for exchange rate used as of 09:40(GMT) 04/01/2023