Commodities Wrap - Oil, Gold, Cocoa, Corn (11.03.2025)

Oil:

• Crude oil remains under pressure in light of Donald Trump’s words, who is ready to sacrifice economic growth in order to continue his trade policy agenda
• In Donald Trump’s view, the US economy must undergo a transitional period in order to adapt to the new reality
• Despite hopes for a recovery in China, the latest CPI data shows a lack of demand pressure. The CPI inflation recorded its biggest drop in 13 months. CPI inflation came in at -0.7% y/y for February, with an expected level of -0.4% y/y. PPI inflation came in at -2.2% y/y, compared to an expectation of -2.1% y/y
• OPEC+ intends to increase production in April by 138 thousand barrels per day
• In February, OPEC produced 320 thousand bpd more, which represents a 14-month high in production at 27.35 million bpd
• The United States is trying to step up efforts to limit oil exports from Iran. Theoretically, it could come to a blockade of tankers or their inspection at sea
• In the opinion of the US Secretary of Energy, the “drill baby drill” policy has a chance of succeeding, even with the current drop in oil prices.
• Secretary Wright also indicated that he plans to seek funds in the amount of 20 billion dollars to replenish the strategic oil reserves
• At a price of USD 70 per barrel (the purchase price provided by the DOE last year), it would be possible to purchase approximately 285 million barrels for the specified amount.
• At the current level of 395 million bbl, purchasing 285 million bbl would lead to almost full replenishment of reserves, which have been reduced since 2010. However, at the current pace of replenishment, this would most likely take a dozen or so years

Strategic reserves currently stand at 395 million bbl and are lower than commercial reserves. Purchasing 285 million bbl amounts to just 3 days of global demand, but at a fast pace it could mean a significant difference for the oil market. Source: Bloomberg Finance LP, XTB

Positions in WTI oil have fallen to the lowest level since September 2024. Previously, around a net position of about 150 thousand contracts, we observed a contrarian signal on oil. Source: Bloomberg Finance LP, XTB

In the case of Brent oil, we are seeing a clear reduction in long positions, although we cannot yet speak of excessive overselling of oil. A drop in the number of long contracts to around 200 thousand could provide a contrarian signal. Source: Bloomberg Finance LP, XTB

WTI oil closed on March 10 at its lowest level since 2021. Currently, prices are rebounding to around USD 67 per barrel, although the 67-68 area can be seen as a supply zone. Source: xStation5

Gold:

• Gold remains at high levels in the face of uncertainty regarding international trade
• The continued weakness of the dollar may mean a decrease in the value of foreign exchange reserves for many central banks around the world, which could potentially lead to further growth in gold demand from official institutions
• Over the past 3 years, central banks have purchased more than 1,000 tons of gold each year, accounting for over 20% of total global demand
• Expectations for interest rate cuts in the US are rising, despite Jerome Powell’s lack of willingness to move in that direction. Currently, the US forward rate is priced at 3.5% on an effective basis, which would mean at least 3 cuts this year. Not long ago, the rate was priced at 4%, indicating two partial cuts from the current effective level of 4.33%
• Although, from a geopolitical uncertainty perspective, gold should be gaining, we are seeing a clear retreat of speculative investors in the market. However, this may be linked to a desire to seek liquidity amidst the recent sell-off in the stock market

Gold has not broken a new all-time high since February 25. Nevertheless, a rise to around USD 2938 per ounce would create a new higher peak after the latest correction, indicating further upward pressure. Currently, a triangle pattern has formed on the chart, with a range suggesting around USD 2770 if prices break lower, and around USD 3010 if they break higher. Source: xStation5

Cocoa:

• According to Hershey, one of the largest chocolate producers in the US and globally, the situation on the ICE cocoa futures market is disconnected from the reality of the physical market.
• A significant decline in the number of futures contracts has led to reduced liquidity and increased volatility.
• The company's Deputy CEO, Tricia Branningan, stated that when analyzing the stock-to-use ratio, the price should be in the range of USD 3,000-5,000 per ton. 

If price changes were to react to changes in the number of futures contracts with a one-year delay, the price may be near a bottom. The current year-over-year price change is approximately 13%, while the number of open positions has dropped by 51% y/y. Source: Bloomberg Finance LP, XTB

The latest ICCO report shows a significant expectation of declining cocoa demand while production is rebounding. Since the beginning of this year, the price has already dropped nearly 30%.Source: Bloomberg Finance LP, XTB

If the five-year average price behavior were to be a benchmark, the price bottom should be near. However, the long-term average suggests the local bottom may come slightly later. Source: Bloomberg Finance LP, XTB

ICE stockpiles are already rebounding and are at their highest levels since December. However, it is important to note that this aligns with seasonal patterns. Source: Bloomberg Finance LP, XTB

• American corn is primarily exported to Mexico, Japan, Canada, and China.
• Uncertainty regarding tariffs is causing contract deliveries to be suspended.
• Currently, 11 million tons of grain are waiting for loading in the US (sold but not yet shipped). The imposition of tariffs could lead to the cancellation of these deliveries.
• Tariff rhetoric has led to a significant reduction in long positions in the corn market, despite the fact that the previous WASDE report showed a decline in expected stock levels.
• At the end of the month, a report on planting prospects will be released. It is expected that American farmers will increase corn plantings relative to soybeans due to higher profitability.
• Since the beginning of this year, corn exports have been higher than last year, which may be related to tariff concerns. The inspection of corn destined for export has increased by 33% this year, reaching 29.08 million tons. Last year, during the same period, it was 21.86 million tons. 

A significant amount of grain remains in US ports, waiting in uncertainty for further tariff decisions. Source: Bloomberg Finance LP, DOA

Over the past two weeks, there has been a noticeable reduction in long positions in corn, although short positions have not increased. Source: Bloomberg Finance LP, XTB