Commodity wrap - Oil, gas, copper, cocoa (04/08/20)

• OPEC + officially from August 1 may increase production by 2 million barrels per day
• A key aspect for OPEC is to keep US shale production low to prevent major price drops
• Reuters points out that in July, OPEC production was higher by about 1 million barrels per day anyway, as some countries such as Saudi Arabia, Kuwait and the UAE reduced additional production cuts
• If the price rises above $ 45-50 a barrel, it could trigger  American production, which has already rebounded from local lows
• There are many concerns about a further recovery in demand from current levels
• Marathon Petroleum reports a decline in gasoline demand in Southwest (a key demand area) as coronavirus cases rise. At the same time, company showed rather poor results for the second quarter of the year.
• At the same time, approval of the new stimulus package may boost prices in the short term

The latest forecasts show an oversupply of over 2 million barrels per day in autumn. Source: Rystad Energy

Production at OPEC increased in July and is likely to continue to grow in line with the raised cap. Source: Bloomberg

The price is trading within the consolidation zone which is additionally supported by the 50 MA. The area around the upper limit of the bearish price gap from early March act as resistance. Oil is still quite overbought by speculators. Source: xStation5

Natural gas:

• The change in weather forecasts indicating a further heatwave causes a significant increase in gas contracts
• The weather forecasts for the next few days show a high probability of greater temperature increases
• The price of gas exceeds the $ 2 MMBTU level and potentially breaks out of months of consolidation
• Gas inventories in the US remain well above the 5-year average, close to the 5-year highs for the period
• Positioning is very high (net), although sellers still have an advantage over buyers. Nevertheless, the net level is reaching extremely high levels, which may limit further gains

The weather forecasts indicate a high probability of rising temperatures, which causes higher demand for electricity, and thus natural gas. Source: Bloomberg

Natural gas inventories remain very high. Without the price returning to the 5-year average, it is unlikely that the rally will continue in the long term. Source: Bloomberg

The positioning on gas is extremely high, although one can  see that we have more net sellers than buyers. Source: Bloomberg

Copper:

• There are concerns about a further rebound in demand for copper due to relatively high prices
• Possible greater supply from Chile as Coldeco re-opens operations in Chuquicamata
• Currently, all copper production around the world is profitable in terms of operating costs (C1)
• Copper inventories on global exchanges continue to decline, but in Shanghai they return to the 5-year average

Currently, all copper production around the world is profitable in terms of operating costs, which means that there is little likelihood of introducing production cuts in the near future. Source: Bloomberg

Inventories levels in China have returned to the 5-year average, although inventories levels on all global exchanges remain well below the 5-year range. Source: Bloomberg

Cocoa:

• The current weather in West Africa supports the cocoa harvest in the so-called "Mid-season"
• However, there are concerns about droughts ahead of the main season, which starts in October
• Cocoa processing experienced a huge decline globally in the second quarter, and the outlook remains mixed. The key aspect will be the revival of the European market
• In our opinion, the growth prospects remain limited and a possible rally may be slowed down around $ 2550-2600 per ton
• Positioning is bouncing back, pointing to a possible continuation of recent upward movement
• However, the overall outlook for the market remains mixed due to uncertainty about demand and a very good harvest season in Africa

The positioning suggests that the rally may continue if long positions rebound further from the currently extremely low level. Source: Bloomberg

The price of cocoa has been rebounding for the third consecutive week. However, the rally may be limited due to still mixed demand outlook. Source: Bloomberg