Commodity wrap - Oil, Natgas, Silver, Coffee (08.07.2025)

Oil

• OPEC+ has agreed to increase production by 550,000 barrels per day in August. A similar production increase is also anticipated for September, which would theoretically allow OPEC+ to unwind all voluntary production cuts from 2023.
• However, real-world data indicates that the actual production increase from OPEC and its allies has been less than declared, contributing to a muted downward pressure on crude oil prices. Demand for oil and fuels has remained robust recently, evidenced by declining US inventories.
• Currently, heightened demand means the market is largely disregarding potential production increases later this year. Nonetheless, the autumn months could see the impact of an oversupply of oil on the market. Concurrently, an increase in market oil supply could lead to reduced US production if downward price pressure were to materialise.

The short-term oil market remains significantly tight, as demonstrated by pronounced backwardation. Furthermore, the contango observed in the 2026-2029 period is also diminishing.Source: Bloomberg Finance LP, XTB

Crude oil remains in an upward trend. A return above the 200-period moving average is plausible, but upside should be capped at $70 per barrel. Should a negative factor emerge (e.g., another trade war commencing August 1st), demand prospects could prompt prices to fall below the $64-65 per barrel demand zone. Source: xStation5

Natural Gas

• Natural gas prices fell below $3.5/MMBTU at the end of June, reaching their lowest point since May 20th. Prices have dipped below the 200-period moving average, though at present, this breach appears similar to short-lived instances in April and May.
• Seasonality suggests we should be past a local trough, although the most significant seasonal price increases typically begin at the end of July. Canada anticipates a substantial rise in gas prices next week due to increased LNG export capacity. The EIA maintains its forecast for average prices in the second half of the year at $4.3/MMBTU.
• Currently, the November contract (marking the start of the heating season) is priced at $3.9/MMBTU, while the December contract stands at $4.5/MMBTU.

The change in inventories for the last week of June was +55 bcf, slightly above expectations but below the 5-year average. Since the end of April, inventory builds have exceeded expectations, contributing to a significant rise in inventories above the 5-year average. We are entering a period of minimal inventory increases, expected to last until early September. The future trajectory of US natural gas prices will depend on the path of inventory changes. Source: Bloomberg Finance LP

Seasonality indicates that the local low should be behind us. However, it is crucial to remember that future price movements will depend on weather patterns and fundamentals. Source: Bloomberg Finance LP, XTB

Gas consumption is tracking around the 5-year average, while gas production remains significantly above 5-year highs. Source: Bloomberg Finance LP, XTB

In the two previous instances, a return of the price above the 200-period moving average led to multi-week periods of gains.Source: xStation5

Silver

• The price of silver has invalidated a potential head and shoulders pattern, breaking past the vicinity of the right shoulder from late June. Current forecasts from financial institutions suggest that silver prices could reach the $38-40 per ounce range this year.
• J.P. Morgan, one of the largest commercial holders of silver, indicates a price of $38 by year-end. Citigroup points to a price of $40 per ounce. Seasonality suggests we should currently be in a period of growth, with speculative positions in silver remaining near recent local highs.
• Silver largely remains driven by industrial demand, which accounts for almost three-fifths of total demand. The vast majority is used in the production of solar panels. A shift in the raw materials used in panel production could lead to a significant drop in silver demand. Concurrently, it is indicated that by 2050, as much as 85-90% of the entire available silver supply will be consumed for photovoltaic panel production needs.

Silver remains near multi-year highs. A breakout from current resistance could propel prices into the $38-40 range later this year.Source: xStation5

Coffee

• The risk of frost in Brazil persists, although it has notably decreased in the past two weeks. It is worth noting that in July and August 2024, frosts significantly reduced production prospects in Brazil and contributed to price increases thereafter.
• According to Vanusia Nogueira, head of the International Coffee Organization (ICO), high coffee prices over the past several months have spurred new investments in production. In her view, the global supply situation will improve over the next three years. However, the ICO chief also indicates that coffee production still faces risks associated with climate change.
• The price of coffee is falling significantly below 300 cents per pound and below the upward trendline that began in early autumn 2023. Long positions in coffee continue to be reduced. Seasonality points to a price rebound in the second half of July. Brazilian harvests are currently ongoing, which may exert downward pressure on prices.

The price of coffee is falling below important support in the form of an upward trendline. Net long positions are being reduced and are at their lowest since 2023. Seasonality points to a price rebound in the second half of July. Source: xStation5