Commodity Wrap - Coffee, Gold, Oil, Wheat

Coffee

• Coffee stockpiles on commodity exchanges continue to decrease

• CFTC data hints at significant decline in the number of short positions

• Rebound similar to the one from 2016. However, a lot will depend on positioning and performance of the Brazilian real

• Coffee price increased almost 30% since mid-October

• Brazilian real remains weak and has hit the all-time high against the US dollar today. Strengthening of the BRL could see rally on coffee market accelerate

Coffee stockpiles continue to decrease on commodity exchanges just as it was the case in 2015 and 2016. Source: Bloomberg

Long and short positions start to balance. Number of short positions as well as net speculative position at extreme levels could pose a threat to the ongoing rally. Source: Bloomberg

Coffee may try to match the range of an upward move from 2016. Potential inverse head and shoulders pattern can be spotted on the chart. Source: xStation5

Gold

• Precious metals deepen pullback amid improved moods on the markets

• Key support can be found at the $1430/ounce

• Seasonal patterns hint at possible pullback in December but a rebound should occur in January

Gold saw quite a substantial price gains in January in recent years. Gold performed mixed in December over the past 5 years but 10-year seasonality points to declines. Source: Bloomberg

Recent breakout from the multi-week consolidation range does not bode well for gold prices. Key support can be found at the $1430 handle, near the 50% Fibo level and the upward sloping trendline. One should keep in mind that gold price tends to rise at the beginning of the year. Source: xStation5

Oil

• OPEC is unlikely to shift its output cut policy. However, the group is likely to press non-committing countries to commit to the deal

• Significant oversupply is expected in the first half of 2020, what could exert downward pressure on crude prices

• Whether we see oversupply or not will be dependant on US shale production

• Significant decline in the number of shale drills as companies find it hard to secure financing

• It is rumoured that lenders limit credit availability to the shale sector for the first time in 3 years

• Moves on the oil market are to a huge extent dependant on the progress in Sino-US trade talks. Signing of a trade deal could see Chinese imports of the US crude rise. Such a development could trigger declines in inventories and push prices higher. On the other hand, the agreement itself should not have a major impact as tariff reduction will not change forecasts of global demand

Oil inventories rise in line with seasonal patterns. Relatively high stockpiles (above 5-year average) and expectations of a continued build-up could limit upward pressure on the oil market. Source: Bloomberg

Stabilization in the number of completed shale wells and decline in the number of uncompleted wells hints that US production has limited room to grow. Source: Bloomberg

Wheat

• Winter wheat condition below 5-year average

• Recent major rainfalls in the United States risk damaging plants ahead of winter season

• Droughts threaten crops in Australia and Argentina. Acreage in Ukraine at risk due to dry conditions

Similarly to 2017, wheat condition starts current season below the 5-year average. Further deterioration could take place in spring. Source: Bloomberg

Wheat price can be found in crucial place from a technical point of view. Break out of the triangle pattern could push the price to as high as 600 cents per bushel. Source: xStation5