Commodity wrap - Oil, gas, coffee, soybeans (07.12. 2021)

Oil:

• Concerns about the omicron seem to have less and less impact on demand
• Goldman Sachs previously indicated that the market has priced in a drop in demand of 7million barrels, while the real impact may be negligible
• It is expected that no US reserves will be released by December 14th. After that date, possible short-term correction on crude oil.
• US crude oil inventories remain stable. It turns out that seasonality is disturbed by a very strong decline in inventories that took place in 2017. If inventories start to decline in a similar way now, then prices could rebound sharply , as was the case 4 years ago.
• Iraq expects oil prices to remain above USD 75.00 in the next few months
• Halliburton warns that we are approaching a point where supply may not keep pace with the recovery in demand. The last 2 years have brought a lack of large investments

Natural gas:

• US gas prices collapsed, in line with seasonality due to warm temperatures in November and early December
• The key spread between the March and April contracts (the so-called widowmaker) fell to 3 cents. In October, it was $ 1.9! This shows that the demand expectations have decreased significantly during the winter period
• The weather likes to surprise, however, last year we had a winter attack in January and February and prices in the US jumped over 30%
• Prices in Europe remain high due to uncertainties regarding supplies from Russia and possible US sanctions on Nord Stream 2 in connection with the potential threat of an invasion of Ukraine
• At the moment, the weather outlook in Europe is very good. Until the 3rd week of December we should expect higher than the average temperatures
• In Europe, 64 heating days are expected per season compared to the 10-year average of 70 days
• US weather expectations are higher than the average for December 12-16
• A slightly larger decline in gas stocks in the US compared to last year and the 5-year average due to large gas inflows to export terminals

Gas inventories in Europe are declining. The warehouses are only 66% full, with an average of 82%. The pace of reducing inventories is currently slightly lower compared to the average and last year. Source: Bloomberg

NATGAS price dropped 45% from October highs. Bloomberg points that the market may be oversold as price fell below the lower Bollinger Bands (2 deviations from the 52-day average). Recently, such a large decline took place in 2014. Additionally, the price broke below the 200-period average. Seasonality indicates that the pullback will last almost until the end of January. Last year, since January 22, the price rebounded almost 40%. Source: xStation5

Gas prices in Europe remain at high levels. It is worth noting, however, that last year, as US prices pulled back from November's peaks, prices in Europe continued to rise. Source: Bloomberg

Coffee:

• The price of coffee reached new local highs due to ongoing supply concerns
• In November, production in Colombia was 22% lower compared to last year! Colombian coffee is considered to be of high quality and the prospects that inventories will rebound are therefore slim
• Coffee exports from Brazil and Colombia are declining due to expectations of further production problems
• Rainfall in Brazil is again below its historic average, which lowers production prospects. Brazil's Arabica coffee production is now expected to drop to around 35 million bags, from 50 million bags previously expected
• Archer Consulting from Sao Paulo indicates that margin calls cost traders approximately $13.4 billion in the last 5 months, only on the New York Stock Exchange. Further price increases may lead to panic closing of the remaining (albeit small) amount of short positions
• It is expected that the situation from the early 1990s may repeat itself. Back then inventories dropped to a critically low level.  Currently, the inventory level on exchanges is approx. 1.6 million bags (it is still low, as it is approx. 1% of global coffee consumption)

Fundamental prospects indicate that inventories may decline further. Source: Bloomberg

The price of coffee is trading above 250 cents a pound. All-time highs are located around  300-330 cents. It is worth noting that in terms of the duration of the bull market, the current situation is similar to 2008-2011, although the price is still much lower. Source: xStation5

Soybean:

• Price re-tests key resistance zone around downward trendline and the neckline of the  double-bottom formation 
• Seasonality points to price increases, at least until the end of the 3rd week of December
• Last year, in the first week of December a double bottom pattern was formed, followed by a strong breakout that lasted continuously until mid-January.
• Soybean imports in China are starting to rebound, however in the period from beginning of the year to November are still 5.5% y / y lower  
• Exports from the United States are around the 5-year average​​​​​​​

Imports in China were worse in November, but are slowly rebounding. China is also importing larger quantities of other soy products. Source: Bloomberg

Soybean prices remain below the downward trend line. If buyers could break above the Fibonacci 23.6% retracement, then the next target is located around the 1,375 cents level. On the other hand, if purchases from China do not satisfy the markets, the price may again test major support at 1,200 cents a bushel. Source: xStation5