Commodity wrap - Oil, gas, platinum, cotton (27.05.2025)

Oil:

• Crude oil remains under pressure amid continued uncertainties surrounding the global trade situation.
• Before the weekend, Donald Trump threatened to impose 50% tariffs on products from the European Union, but after discussions with European Commission President Ursula von der Leyen, he postponed the larger tariffs until July 9.
• China has doubts about the growth of trade with the US, as it expects tariffs to remain higher than before Donald Trump's second presidency. The number of ships carrying Chinese products to the US continues to fall, despite an agreement to lower tariff rates.
• OPEC+ is expected to decide again at the end of this month on an additional production increase from July, exceeding 400,000 barrels per day. OPEC+ is scheduled to increase production by 411,000 barrels per day in May and then in June. Normally, production was supposed to increase by approximately 130,000 barrels per day.

US crude oil inventories have seen an increase, though the momentum remains slight. Seasonally, inventories are typically expected to decline at this time of year. However, last year, the decline didn't begin until June. Source: Bloomberg Finance LP, XTB Research

Crude oil price currently appears low, judging by its deviation from the one-year average. It's trading approximately two standard deviations below this average, which has historically been a strong indicator of short-term undervaluation. Looking at the five-year average, the most significant undervaluation typically occurs at four standard deviations below the mean. Source: Bloomberg Finance L.P., XTB Research

The number of vessels and their tonnage traveling from China to the USA continues to decline, despite an agreement to reduce extremely high tariffs. Source: Bloomberg Finance LP

OIL.WTI remains in consolidation and is holding above the $60-61 per barrel range. Source: xStation

Natural gas:

• Natural gas prices remain elevated after the recent rollover, despite a combination of limited demand and high supply.
• The price is currently holding above the rollover gap zone, which spans between $3.35 and $3.6 USD/MMBTU.
• Inventories have climbed back above their 5-year average. Furthermore, the forecasted inventory increases for both the past and current week exceed 100 bcf.
• Seasonality suggests that natural gas should only begin to rebound towards the end of June or early July.
• In the United States, weather conditions remain moderate across most states. It's slightly colder than usual in the western part of the country, which is contributing to reduced demand for electricity generation.

Demand for natural gas remains significantly below supply, a factor that is driving inventory builds of over 110 billion cubic feet (bcf) per week. Source: Bloomberg Finance L.P., XTB Research

Natural gas inventories have returned above their five-year average, primarily due to limited demand. Source: Bloomberg Finance LP, XTB Research

Seasonality suggests a period of consolidation for natural gas in the near term, with a more significant rebound not expected for about another month. Source Bloomberg Finance LP, XTB Research

Platinum:

• Platinum has recorded its largest weekly increase since 2021, surging over 10%, primarily fueled by a significant rise in demand from China.

• China has substantially increased its platinum imports, mainly for use in jewelry. This surge is attributed to platinum's lower price and reduced volatility compared to gold.

• In April alone, China imported 11.5 million tons of platinum, marking it the highest level in a year.

• According to the World Platinum Investment Council (WPIC), the platinum market is projected to face a deficit of 1 million ounces this year. This market deficit is expected to persist for the next decade, indicating a long-term supply-demand imbalance.
• The number of platinum jewelry vendors in Shenzen (a major jewelry hub in China) has tripled in the last month. Retailers are now experiencing nearly double the waiting time for finished products compared to a month ago.
• WPIC data also reveals that China's imports of platinum in the form of bars and coins doubled in the first quarter of this year, surpassing demand from North America. 

Speculative positions in platinum are beginning to rebound, although this market still lacks significant liquidity. Source: Bloomberg Finance LP, XTB Research

Exchange-Traded Funds (ETFs) purchased a significant amount of platinum last week, though the pace of accumulation is still far from the dynamics seen in 2020, 2023, or 2024. Source: Bloomberg Finance LP, XTB Research

The price of platinum has surged to levels not seen in a year, reaching nearly $1100 per ounce. This puts the price of platinum at three times lower than that of gold. It's important to note that the correlation between gold and platinum prices has not been very strong in recent years. For instance, in 2020, after gold reached an all-time high in August, despite a downward trend in gold, platinum prices began a significant upward trend from October 2020 to February 2021. Therefore, should there be pressure on gold, it's not impossible for platinum to begin a medium-term upward trend. This suggests that platinum may act as a diversifying asset or an alternative investment in periods of gold weakness. Source: xStation

Cotton:

• Cotton prices remain at low levels, hovering slightly above 65 cents per pound. This level is considered the lower boundary of a consolidation range that extends up to 69 cents per pound, a range that has been in place since the beginning of January.
• Seasonality suggests potential declines in the first two weeks of June.
• The latest USDA report provided initial projections for the 2025/2026 cotton season, indicating that global inventory levels are expected to remain around 78 million bales, which is near a 10-year high.
• The report also showed lower production in the current season compared to the 2024/2025 season and slightly higher demand. The 2025/2026 season is projected to bring a minimal deficit after last year's significant oversupply.
• The decrease in production will be primarily observed in countries such as China, Australia, and India, while an increase in production is expected in Brazil, Pakistan, and the US.
• Demand is projected to increase, but notably not in the two key global players, India and China, which together account for 50% of global demand.
• After significant declines in short positions in recent weeks, speculators' short positions have started to rebound again. However, net positions have not significantly approached neutral positioning and remain negative. Long positions have remained relatively unchanged for over a year.
• Rainfall forecasts remain close to standard levels in key cotton-growing regions of the US, which should not lead to a reduction in plantings.
• Currently, 40% of the planned acreage in the US has been planted, representing a 12% increase compared to the previous week and 3% above the 4-year average.

Short positions in cotton have once again begun to increase, which limits the potential for a price rebound in the near term. Source: Bloomberg Finance LP, XTB Research

Cotton prices have been consolidating since January of this year, with the price currently hovering between 65 and 69 cents per pound. Seasonality suggests potential declines in the near term. Due to substitution effects, crude oil prices will be a significant factor in cotton pricing. If oil prices continue to fall, it's possible that cotton could break out of its current consolidation zone to the downside. However, the price is ultimately expected to rebound from the 62-63 cents per pound range. Source: xStation