Commodities Wrap - Oil, Gold, Natgas, Coffee (03.12.2024)

Oil:

• November's PMI indices from China and US ISM Manufacturing came in stronger than expected, suggesting limited potential for demand decline in the final months of this year
• However, latest EIA forecasts indicate potential significant oversupply next year, the largest cumulative since 2022
• EIA predicts minimal production growth from OPEC+ in 2025, suggesting the American institution assumes delayed production restoration from the cartel
• OPEC+ postponed its production meeting to December 5th. It's now expected that OPEC+ will decide to begin restoring production from Q2
• Previous arrangements assumed OPEC+ would restore production by 180,000 barrels per day monthly, starting from October. This timeline has been continuously postponed
• It's worth noting that from next year, the United Arab Emirates plans to gradually increase production, reaching a 300,000 barrel per day increase by 2025

EIA forecasts indicate potential for significant oversupply next year, even assuming minimal production growth from OPEC+. Source: EIA, XTB 

Oil inventories in the USA have recently consolidated, though remain below the 5-year average. Source: Bloomberg Finance LP, XTB

WTI oil remains under pressure for a longer time and struggles to stay above $70 per barrel. However, if production increase is postponed to later months of second quarter, there's a chance for positive impact on oil and movement above the zone related to 25 and 50 SMA averages, around $71 per barrel. Source: xStation5

Gas:

• Current gas consumption in the United States is significantly higher than seasonal patterns would suggest. High gas demand will certainly maintain in 1-week perspective
• On the other hand, 2-week forecasts already indicate a clear temperature increase compared to standard levels
• US inventories remain at extremely high levels, which was related to resumed higher production and export limitation
• Price seasonality itself indicates possible significant decreases (based on 5 and 10-year averages). However, looking at these averages, price decreases are starting later than standard

Temperatures in 2-week perspective are to be significantly higher. Source: Bloomberg Finance LP

Consumption (upper chart) is higher than standard, which is related to current lower temperatures. However, in 2-week perspective, consumption should return to average levels. Source: Bloomberg Finance LP, XTB

US inventories remain at very high levels. However, the next two publications should show significant inventory decreases. Source: Bloomberg Finance LP, XTB 

Gas price breaks through the 15-period average, which historically was a correction signal. The downward movement range may assume even going below $3, to upward trend line areas. If winter is warm again, movement to around $2.5/MMBTU cannot be excluded. In case of another winter attack, the upward scenario assumes entering the $3.5-4.0/MMBTU zone. Source: xStation5

Gold:

• Gold experienced its first price decline since January this year (excluding minor change that occurred in June)
• Profit-taking on gold occurred in connection with presidential elections in the United States
• Short-term seasonality indicates possible revival in December. On the other hand, further gold fate may depend on interest rate prospects in the United States
• The gold-to-silver ratio is currently quite high, which may suggest that with precious metals market recovery, stronger silver price growth potential will be visible again
• Assuming gold price increase to $3,000 per ounce and ratio decrease to 70, this would give chance for silver price at almost $43 per ounce

Excluding minor June retreat, gold experienced its first major correction since January, looking at monthly changes. However, since 2017 gold always gained in December. Source: Bloomberg Finance LP, XTB

Looking at gold behavior after Biden's election 4 years ago, theoretically we should be ending correction. On the other hand, elections from 8 years ago indicate another week of declines is possible. Looking at detailed December seasonality, usually largest increases occur from December 13-15. Source: Bloomberg Finance LP, XTB 

Looking at average gold behavior after first cycle cut, theoretically we should prepare for about 10-20 days of consolidation, before later revival. Source: Bloomberg Finance LP, XTB

Net speculative positions amount is growing, but this is related to short positions decrease. Long positions haven't grown for several weeks. Source: Bloomberg Finance LP, XTB 

Gold is currently experiencing revival attempt, but based on recent changes, market awaits new stimuli. Next important event for gold will be Fed decision on December 18th. Though potentially this might be a threat for gold, one must remember about risk realization issue and return to main trend. Source: xStation5

Coffee:

• Coffee price retreats from near-highest levels since 1977 due to increased rainfall appearance in Brazil, which increases chances for higher production in 24/25 season
• Due to extremely weak real, Brazilian farmers tried to use the situation and sell most of their stocks for export. Currently however, we observe uncertainty regarding next year's harvest, which may limit inventory rebuilding potential for next year
• Official forecasts still assume significant oversupply next year, but current weather conditions indicate that next forecasts should be heavily revised
• Short-end futures curve isn't in strong backwardation, though differences between nearest contracts are larger than month ago

Coffee price falls due to rainfall appearance in Brazil. Source: Bloomberg Finance LP, XTB 

Significant oversupply is still expected with Brazil production at 66-70 million bags. However, if production were revised by 5%, potential for reducing entire oversupply might appear. Source: Bloomberg Finance LP, XTB 

Extreme backwardation isn't visible in the market, though it's larger than month ago. Market talks about lack of new sellers. Source: Bloomberg Finance LP