Commodity wrap - Oil, Natgas, Gold, Coffee (05.01.2025)

Oil:

• Tariffs on Canadian and Mexican products have been postponed by at least a month, limiting the growth prospects in the oil market.
• Initially, tariffs on Canadian oil were supposed to be 10%. Canadian oil is crucial from the perspective of American consumers. Canada is the primary external supplier for the U.S. fuel sector. Canadian oil is also unique and difficult to replace (other countries producing similar oil are under sanctions).
• However, Donald Trump has issued a decree emphasizing the need to limit Iran's oil exports as much as possible. It is worth noting that Iran primarily exports oil to China, so U.S. actions may not yield significant results.
• Nevertheless, this serves as a bargaining chip for Donald Trump. If Trump lifts tariffs on China, China may commit to purchasing more oil from the U.S. and reducing its reliance on Iranian oil. Iran exports approximately 1.6 million barrels per day.
• In retaliation for the tariffs, China has decided to increase tariffs on U.S. oil to 10%. It is important to remember that China has been sourcing oil not only from Iran but also from Russia, limiting its need to import oil from the U.S.
• The latest OPEC+ decision indicates a continuation of all production cuts until March, with an increase in production planned from April.
• OPEC is abandoning EIA data on oil production in favor of data presented by Kpler, OilX, and ESAI. Theoretically, this allows for more room to manipulate data. Previously, OPEC had already stopped using IEA as an external data source in 2022. In addition to the EIA, OPEC is also discontinuing the use of Rystad Energy data.

For a long time, Iran’s oil exports have stabilized above 1.5 million barrels per day. However, it is worth noting that Trump's previous presidency led to Iranian oil exports dropping to nearly zero. Currently, Trump has a bargaining chip with China in the form of tariffs. If China stops buying Iranian oil, it could lead to potential price increases in the market. Source: Bloomberg Finance LP, XTB

U.S. oil inventories remain relatively low compared to recent years. However, comparative inventories no longer indicate such a severe deficit. Source: Bloomberg Finance LP, XTB

Crude oil is balancing on the edge of a significant support level, including the 61.8% retracement of the last upward impulse, the 50-period moving average, and the $72 per barrel level. A close below this level today could signal an attempt to move back down to the $70-$71 range. However, if support holds, the potential indicates a rebound to the $74.5-$75 per barrel range. Source: xStation5

Gold:

• We are currently seeing the highest demand for physical gold since the pandemic. Gold inventories on COMEX have increased from approximately 17.5 million to 32 million ounces within a few weeks.
• The price increase has been ongoing since the beginning of Trump's presidency but surged significantly after threats related to trade tariffs. Canada is one of the largest producers and suppliers of gold worldwide, so the risk of 25% tariffs has triggered a sudden inflow of gold into the U.S.
• The potential cancellation of all tariffs presents a short-term risk to gold prices. However, Donald Trump continues to introduce new risk factors. Currently, he suggests a greater U.S. involvement in the Gaza Strip.
• Trump is also offering Ukraine more weapons if it supplies the U.S. with rare earth metals. In retaliation for the 10% tariffs, China has announced export controls on these raw materials to the U.S.
• Currently, geopolitical factors are driving gold prices—concerns related to trade tariffs, the Middle East situation, Ukraine, and, of course, physical demand.
• From a monetary perspective, a negative factor is emerging—term interest rates are stabilizing at around 4% for June. It is also possible that the potential for rate cuts will decrease further by then.

Expectations are that interest rates will drop to 4.1% in June, implying two potential cuts. On the other hand, these expectations may still be lowered further. This suggests that the price increase of approximately $200-$300 per ounce in recent months is not driven by monetary factors. Source: Bloomberg Finance LP, XTB

Gold is experiencing strong growth, with the beginning of the year being significantly stronger than historical averages. Theoretically, we could expect consolidation in the first quarter of the year. Source: Bloomberg Finance LP, XTB

Gold is reaching new all-time highs daily. Currently, it is in its fifth consecutive day of gains, which has been a rare occurrence in the past. Additionally, the price is deviating from the upward trend line. Since mid-December, the gold market has not experienced a major correction, which raises questions about short-term stability. Source: xStation5

Gas:

• The beginning of the week brought a significant rebound in gas prices in response to potential tariffs and changing weather conditions.
• Once again, weather forecasts in the U.S. have shifted, and it now appears that the second half of February may bring a drop in temperatures. However, it will not be as harsh as the winter in January.
• Gas consumption is declining in line with seasonal patterns.
• In the short term, consumption should continue to decrease, which could push gas prices to lower levels.
• The futures curve is currently flat on a one-month horizon, but it then returns to a distinct contango structure.
• During the summer, price increases could potentially exceed those projected in the futures structure if the U.S. can significantly increase exports and domestic demand grows faster than potential production.

Gas consumption has returned to the range of the five-year average, while production exceeds five-year highs. Source: Bloomberg Finance LP, XTB

The current behavior of comparative inventories is starting to resemble the situation from 2021, which led to significant price increases in the second half of 2021 and in 2022. Source: Bloomberg Finance LP, XTB

The next two reports are expected to show inventory declines of around 100 Bcf. Source: Bloomberg Finance LP, XTB

Gas has been losing ground over the last two sessions despite the weather changes. If there is no extreme cold wave, the seasonal outlook suggests gas prices could decline even below the 200-period moving average. Source: xStation5

Coffee:

• Coffee is reaching new all-time highs, approaching 400 cents per pound due to concerns about market supply.
• Brazil’s coffee stocks were heavily depleted in the previous season, and farmers are limiting coffee sales for the 2025/2026 season contracts.
• The Brazilian government expects coffee production in the 2025/2026 season to decline to 51.81 million bags. CONAB estimates production will drop to 54.2 million bags—levels below previous forecasts.
• The Brazilian real is rebounding, further limiting coffee's export potential and driving prices even higher.
• Javier Blas from Bloomberg expects double-digit coffee price increases in the coming months due to production issues in Brazil and Vietnam.
• According to Blas, coffee demand has exceeded supply by an average of 15-20 million bags over the past four years.
• As Bloomberg reports, companies like Starbucks, Restaurant Brands International, and McDonald's are struggling to pass higher coffee costs on to consumers.

ICE inventories have started to decline again, remaining at low levels despite a slight increase at the end of 2024. Source: Bloomberg Finance LP, XTB

The sharpest price increases are occurring at the short end of the futures curve, indicating reduced short-term coffee bean availability. The market points to slightly better prospects from mid-2026 onward. Source: Bloomberg Finance LP

The strengthening Brazilian real is causing producers to limit coffee sales from already low stocks, further fueling upward price momentum. As seen in the chart, positioning remains at extremely high bullish levels. Source: xStation5