Commodity Wrap - Oil, Gas, Gold, Cocoa (05.11.2024)

Oil:

• OPEC+ decided to further delay restoring production to the market. Previously, OPEC+ was to restore 180,000 bpd from October, then moved it to December. Currently, the plan assumes production increase from January

• Next OPEC+ meeting will take place on December 1st
• Before the decision, analysts from banks like Citi and JP Morgan indicated possible price drops to $60 per barrel, due to market oversupply caused by OPEC+ production increase and weak demand, primarily from China
• Oil is also supported by rising tension in the Middle East. Iran's Supreme Leader announced a retaliatory attack on Israel, planned to be larger than before. He indicated the attack would take place between the US elections and the new president's inauguration
• In case of an actual large attack, Israel might decide on a full-scale conflict with Iran or at least target Iranian oil infrastructure, which could disrupt global supply
• OPEC+ increased production in October by 400,000 bpd, but this was mainly due to restored production in Libya
• Despite demand uncertainty, recent US data showed oil inventories are 4.2% below the 5-year average, gasoline stocks 3.5% below, and distillates 8.8% below
• US oil production maintains a record level of 13.5 million bpd
• US presidential elections may have limited short-term price impact but could significantly affect long-term prices. Trump theoretically favors increasing production, while Harris opposes it. Trump seems to have more influence over OPEC, as shown during his previous presidency

Oil is rebounding due to OPEC+ and Middle East tensions. Recently, however, a divergence has emerged between WTI oil and the inverse of TNOTE (or yields). If yields start falling (TNOTE starts rising), downward pressure on oil may appear. However, if yields continue to rise (TNOTE continues to fall), then oil prices may continue their upward trend. Source: xStation5

Gas:

• US natural gas prices rose nearly in double digits early this week due to changing weather forecasts

• Price opened with a negative gap around $2.5/MMBTU on Monday but then rose to almost $2.8/MMBTU
• Latest weather forecasts indicate lower temperatures in the West and Central US
• Production on Monday was 100.5 bcfd, 5% lower than last year
• Last week's inventory report showed an increase of 78 bcf
• Trump's election might mean increased permits for shale gas extraction
• Both candidates seem to support technology business development in the US

Inventories in the US have moved closer to the 5-year average, but the start of inventory decline may be later, similar to last year. Source: Bloomberg Finance LP, XTB

Due to strong price increases on Monday, November 4th, NATGAS trades above the upward trend line. Seasonality indicates continued declines, but this will depend on weather. An important support zone lies between the 100 and 200-period moving averages. Source: xStation5

Gold:

• Looking at gold price behavior after the two previous elections, it seems that profit-taking may also occur in the case of current elections

• Theoretically, Trump's election could strengthen the dollar, which should be negative for gold. However, at the same time, Trump's election means greater unpredictability in foreign policy, which could be good for gold in the longer term
• Harris's election theoretically could mean dollar weakening, which should favor gold. Theoretically, Harris would be a surprise, which is also positive for gold. However, Harris means continuation of current policies, which in the short and medium term may mean reduced market risk
• In the longer term, gold will depend primarily on the interest rates and demand from investors and central banks
• On Thursday, the Fed will be making an interest rate decision. It seems almost certain that interest rates will be lowered, but it's unclear what the bank's official guidance will be
• Recent NFP data were negative, which should guarantee another cut in December. On the other hand, GDP data for Q3 was very strong
• ETFs bought over 90 tons of demand in Q3, but recently we've observed no major purchases
• Seasonality indicates flat gold behavior in coming weeks or even a correction. December and January are statistically the best period of the year for gold

Seasonality suggests flat gold behavior in the coming week. Gold is experiencing a slight correction recently and potentially forming an RGR pattern. The first support for gold is at 2700, which coincides with the 25 SMA. The potential RGR formation target is 2640, near the 50-period moving average. Source: xStation5

Cocoa:

• Growing conditions for cocoa in Ivory Coast are good, which gives chances for higher harvests than last year

• Cocoa prices are rebounding recently, which is related to the approaching rolling of futures contracts by a large portion of financial institutions
• As in previous cases, investors with short positions don't want to make delivery. This builds up prices at the short end of the futures curve, but after the rolling of contracts, downward pressure usually disappears quite quickly
• Currently, the difference between contracts is about $400 per ton. Maintaining a price of $7000 after rolling (as in previous cases) requires a price slightly above $7400
• The latest data showed that cocoa deliveries to ports in Ivory Coast from October 1 to November 3 totaled 365,000 tons, compared to 289,000 tons a year earlier. This means harvests are 26% better than last year
• The Ivory Coast regulator LCCC raised its harvest forecast for the 24/25 season to 2.1-2.2 million tons from the June level of 2.0 million tons
• Cocoa stocks on the ICE exchange in the US continue to decline for 17 months and are currently at their lowest level in 19 years
• In Ghana, there is an ongoing practice of storing cocoa in anticipation of higher prices. Despite recent price increases for farmers, smuggling to neighboring countries is still possible due to the desire to receive higher prices

Volatility in the cocoa market has significantly decreased. Speculative activity is not increasing. The futures curve remains in strong backwardation, suggesting prices next year could be even around $5000 per ton. Source: xStation5