Commodities Round-up - OPEC inspires an oil rally and copper retraces off the back

Friday, 5th March 2021 09:25 - by Rajan Dhall

Oil is off to the moon at the moment as the OPEC+ will they won't they saga continued this week. As always with OPEC there was lots of hearsay and drama but the final result meant that all but Russia and Kazakhstan will keep their oil production levels at their current levels until the next OPEC+ meeting. The big result here for the oil bulls will be that Saudi Arabia are also keeping their production static although one source said the Saudi's will gradually brink back its 1 million barrel per day supply starting in May. Russia and Kazakhstan will be allowed a "modest" rise in production, whatever that means. The next OPEC+ meeting will be in April and this will be to decide output levels for May and beyond.

The weekly chart below shows the extent of the rise. I have taken out the extreme move to zero when there was the oversupply in April. The next major resistance level is now at the $66.60 per barrel level. Beyond that, the next high is at the 2018 high near $76.90 per barrel level.

Source: TradingView

The dollar is playing havoc on the rest of the major commodities. Copper is still in a state where the market is undersupplied. This retracement could give the bulls another opportunity to jump on the bandwagon. Moving back to the dollar the main point for this week has been about the rise in interest yields once again. The big question was if Fed Chairman Powell would talk about Yield Curve Control. In Japan, the BoJ control the price of their 10-year debt market the JGB and analysts were wondering if Powell would do something similar. On Thursday, Powell said the Fed's current stance is appropriate and the recent volatility in yields has "caught his attention" but it is not appropriate to isolate one interest rate or price.

The fundaments still remain pretty strong for the base metal and in a recent report JPMorgan said “green” copper demand from electric vehicles and renewable energy would rise from 925,000 tonnes this year to 4.2m tonnes by 2030. The CEO of the world's largest copper producer Freeport McMoran has also stated copper stocks were already at their lowest level since the mid-2000s even though many big economies were still hampered by Covid.

The chart below shows the power of technical analysis. The Fibonacci extension stripped exactly at the golden ratio of 1.618 now the yellow support zone at $3.30 per pound could be in focus. It would be hard to see the price hitting that zone but if the greenback strength persists then it could be a possibility. The next volume profile mean value area is at $3.59 per pound and that could be an area of support too.

Source: TradingView

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