Commodity Wrap - Oil, Gas, Gold, Cocoa (29.10.2024)

Oil:

• Oil responded with a sharp decline to Israel's attack on Iranian military infrastructure. The attack was limited in scope and did not affect oil infrastructure, which cleared all market premium related to Middle East uncertainty
• Iran has not yet indicated whether it intends to take retaliatory action
• Despite mixed information regarding demand prospects globally, particularly in China, we're observing a decline in floating oil inventories, which may suggest demand recovery along with price decreases. Vortex reports that inventories fell by 18% w/w in the 7 days to October 25
• China continues to show weak data. According to Bloomberg, oil demand in China was 14.176 million bpd in September, down 7% y/y. For January-September, demand was 13.99 million bpd, nearly 4% lower y/y
• Financial institutions expect limited oil prices next year, which should not exceed $75-80 per barrel
• Oil prospects may, of course, depend on OPEC+ production increase policy

Brent crude fell below $71 per barrel, testing local lows from late September. Currently, the key supply zone extends from $75 per barrel (50 SMA) to $79 per barrel (100 SMA). Source: xStation5

Gas:

• Gas prices saw about a 10% increase after October rollover, but early in the last week of October, prices fell over 6% due to persisting high temperatures delaying the start of the heating season in the US
• Maxar Technologies, a satellite technology company, indicates that most states have recently experienced above-normal temperatures, and weather projections suggest higher temperatures will continue in the near term
• US gas production remains above 100 bcfd, while demand stays above 70 bcfd, which is over 6% higher than last year
• Last year's scenario could still fully play out. In 2023, after a pullback during October 27-29, there was a significant increase just before the end of November and contract expiration

14-day weather forecast indicates continued higher temperatures in the US. Source: NOAA

Gas price dropped significantly but remain above the 14-period average. If this level is broken, gas prices could move towards the upward trend line between $2.5-2.6 USD/MMBTU. Of course, weather changes could lead to a complete change in gas outlook. Source: xStation5

Gold:

• Gold continues to rise despite reduced Middle East risk. However, uncertainty regarding next Tuesday's presidential elections is a major factor for gold
• Besides elections, the Federal Reserve will make an interest rate decision next Thursday
• Interest rate cut expectations have significantly decreased recently in the US, but the baseline scenario assumes cuts at both November and December meetings. However, if communication indicates a possible hold on cuts at one of the meetings, gold could lose significant value along with yield increases
• Gold currently maintains an annual increase of over 33%, the largest since the late 70s/early 80s
• Seasonality and gold price behavior around elections suggest a possible correction followed by a December rebound. Of course, past performance doesn't necessarily indicate future results

Gold has had its best year in terms of performance in over 40 years. Source: Bloomberg Finance LP

Gold declined for about a month after election results in both 2016 and 2020. Source: Bloomberg Finance LP, XTB

Long-term seasonality may suggest a sideways trend or weakness in November. Source: Bloomberg Finance LP, XTB

Cocoa:

• Cocoa prices rebounded and returned to around $7000 per ton, despite continued higher cocoa deliveries to Ivory Coast ports compared to last year
• Deliveries through October 27 were 284,000 tons, compared to 226,000 tons last year
• Ivory Coast cocoa production expectations for 24/25 season were revised to 2.2 million tons
• Recent cocoa processing data showed year-over-year growth in America and Asia but a 3.3% y/y decline in Europe, potentially indicating prices were already too high
• Before previous rollovers, upward pressure built up due to short position holders wanting to avoid delivery obligations. Currently, the difference between successive contracts is significantly decreasing, but continued cocoa availability issues may lead to pressure to close short positions before rollover
• The next XTB rollover is scheduled for November 7. However, this will involve rolling December contract to March, so upward pressure may continue before December contract expiration
• Current difference between contracts is about $400. A month ago it was nearly $1000. The July contract is currently trading below $6000

The difference between December and March contracts has decreased. However, recent revival led to curve increase from July next year. In short term, this indicates greater supply certainty in the short term. Source: Bloomberg Finance LP

Next rollover is on November 7. Although differences between contracts have decreased, there's a chance for upward pressure before rollover. Source: xStation