Commodity wrap - Oil, Coffee, Natural Gas, Gold

Oil

• OPEC+ announced that it will cut output by an additional 500k barrels per day
• Group agreed to a total cut of 1.7 million barrels per day but adding additional cuts from Saudi Arabia as well as factors not related to the agreement, reduction in output could amount to 2.1 million barrels per day
• Additional cuts within OPEC group will amount to 372k bpd while non-OPEC producers will slash output by 131k bpd with Russia being responsible for 80k bpd
• Output cuts were agreed for the first quarter of the year but extension remains on the table
• OPEC+ provided support for shale producers as they were on the edge of another output collapse due to low prices
• In case countries like Russia, Iraq or Nigeria fail to comply with the agreement, Saudi Arabia is likely to withdraw from additional cuts
• Iraq was in compliance with agreement only once - in March 2019. The country would need to decrease output by around 300k bpd in order to get in-line with the agreement

Oil jumped on the back of Opec’s decision but price still remains significantly below peaks from September. However, new output cut agreement leaves some space for the shale producers to boost production. Such a development could limit upside in the market. Source: xStation5

Bloomberg data suggests that Iraq was in compliance with an agreement twice. However, OPEC data says that the country was in compliance only once. New output limit was set at slightly above 4.45m bpd. Source: Bloomberg

Coffee

• ICO report for October showed that production in 2019/20 season will be 0.9% YoY smaller
• Data also shows consumption rising by 1.5% - slower than 10-year average of 2.1%
• Deficit in the 2019/20 season is forecasted at 500k bags of coffee
• Noticeable decline in exports in October. Weather factors and low prices are said to be the cause
• Global stockpiles tracked by ICE continue to decline
• Positioning continues to favour coffee price gains. Significant divergence between long and short positions. Story from 2016 suggests that continuation of price gains could take place over the next few quarters

ICO expects a deficit of 500k bags of coffee. Source: ICO

Significant decline in exports for October was due to weather factors and low prices. Source: ICO

Natural gas

• Natural gas prices keep falling, they have already reached the lowest level since October
• Stocks in the US hover around the 5-year average
• We got a decline of stocks in the US that was decisively lower than the 5Y average implied - the main reason was higher temperature compared to the same period last year (roughly 4 degrees higher, though it’s still below the 5Y average)
• If relatively high temperature persists, natural gas prices may decline toward $2 MMBTU
• Short positions are extremely high, while longs are at their lowest level since 2012

The latest fall of US stocks turned out to be tiny. Source: Bloomberg

A number of shorts has increased considerably, while longs are at the lowest level since the turn of 2011 and 2012. On the other hand, there is still some space left to reach the lowest net positions seen in 2011 and 2015. Source: Bloomberg

Gold

• Gold prices keep consolidating after a sharp sell-off seen in November
• Key supports are localized at $1450 and $1430, while the area between $1370 and $1400 could be important in the long-term
• A consolidation has also been seen in ETF’s holdings as well as in the CFTC positioning data
• The pattern from 2016 suggests that a possible turning point in terms of long positions could take place in January, which would also be a possible omen for a deeper sell-off

No clear trends in either positioning or ETF’s holdings. One would expect such a pattern could be present at least until January. Source: Bloomberg

November brought a bearish engulfing candlestick, though bulls are still striving to stay above $1450. Source: xStation5