Commodity Wrap - Oil, Coffee, Natural Gas, Copper (03.10.2023)

Oil

• Brent crude oil has been experiencing significant volatility since September 28th, and today it is reacting to support at the $90 per barrel level, the 23.6% retracement, and the range of the largest correction in the current trend
• Another important support level is in the vicinity of $88 per barrel
• We have been observing a fairly sharp decrease in oil spreads (both Brent and WTI), which could indicate short-term overvaluation
• On the other hand, the shape of the forward curve remains largely unchanged, with a clear backwardation and significant price differences at the short end of the curve
• It is expected that OPEC+ will not change its stance. They may only indicate that production cuts could be maintained or increased based on the fundamental situation, which could provide support for prices after the current correction.
• Comparative inventories remain low, both compared to last year and the 5-year average
• The price is retracing after reaching a 2-standard deviation from the 1-year average

Comparative inventories suggest a possibility of further price increase. Should inventories start to increase, the outlook for oil price may begin to change. Source: Bloomberg Finance LP, XTB

Price is pulling back after deviating by more than 2 standard deviations above 1-year average. Source: Bloomberg Finance LP, XTB

Shape of the futures curve is similar to a week ago, signaling that the market remains very tight. Source: Bloomberg Finance LP

Brent (OIL) is bouncing off an important $90 support zone although key support can be found slightly lower near the 50-session moving average in the $88 area. Source: xStation5

Coffee

• Coffee remains in a very strong contango. A year ago and six months ago, we observed slight backwardation
• Despite certain production issues and El Nino concerns, there is an expectation of production surplus in the current season
• However, coffee inventories remain extremely low
• The coffee price is approaching the 5-year average. Seasonality shows consolidation until the last month of this year
• When looking at price behavior in the long term, it's worth noting that after a strong upward cycle, prices always return to the base of the upward impulse, which would imply a price decline to around 100 cents per pound

Price is nearing a 5-year average. However, it should be noted that price may be in a downward cycle, which may lead to a pullback to as low as 100 cents per pound. Source: Bloomberg Finance LP, XTB

5-year seasonality suggests that coffee may trade sideways in the coming months with a potential to rebound in the final month of the year. Source: Bloomberg Finance LP, XTB

Coffee market remains in contango. Interestingly, 6 and 12 months ago the market was in backwardation. Source: xStation5 Bloomberg Finance LP, XTB

Coffee inventories on ICE exchange remain extremely low. Source: Bloomberg Finance LP, XTB

Coffee remains in significant divergence with the sugar market, which saw significant deficits in recent years. Large divergences in the past tended to herald declines on both of those markets. Source: xStation5

Natural Gas

• The current contango in natural gas is slightly smaller than in the next year, which may suggest that the excess supply will decrease
• On the other hand, we have primarily observed a drop in prices at the short end of the curve, which could indicate reduced demand
• Comparative inventories continue to decline, but there is still a relatively large surplus compared to inventory levels from last year or the 5-year average
• It's worth noting that the price of gas started to rebound quite strongly after the October rollover and ultimately reached its peak during the November roll last year
• The peak of the futures price on the curve is expected to occur in January

Futures curve suggests a slightly smaller contango but at the same time, price drops at the short end were much quicker than on the next year's contracts. Source: Bloomberg Finance LP, XTB

Comparative inventories continue to decline although at a much smaller pace. Simultaneously, inventories do not suggest that a crash is looming. Source: Bloomberg Finance LP, XTB

Natural gas continues to trade in $2.45-3.00 per MMBTu range. It should be noted that the price reached a local low during October's rollover last year and reached a local high ahead of November's rollover. The next local low was reached just prior to December's rollover. Source: xStation5

Copper

• Copper is once again reacting to recent reports from China, which indicate ongoing issues in the real estate market
• On the other hand, autumn is the construction season in China
• Copper inventories have rebounded somewhat recently, influenced by increased production in Chile and Peru on a year-over-year basis
• However, inventories still remain at very low levels and may indicate a potential short-term price peak for copper
• The Chinese yuan remains weak, but the head and shoulders pattern has surfaced on USDCNH chart. Divergence with copper remains high.

Copper inventories remain low but have rebounded slightly recently (inverted axis). Source: Bloomberg Finance LP, XTB

COPPER broke below the lower limit of the triangle pattern. Source: xStation5