Commodity Wrap - Oil, Gas, Gold, Cocoa (24.09.2024)

Oil:

• A large cut in US interest rates and stimulus from the People's Bank of China are leading to a revival in the oil market.
• If the freed-up cash in Chinese banks leads to an increase in oil imports, it could mean that the deficit in Q4 of this year will be larger than the EIA's forecast of 1 million barrels per day.
• UBS expects a price above $80 per barrel by the end of this year, based on forecasts indicating a persistent deficit in the oil market until the end of this year.
• The lack of escalation in the Middle East is leading to limited price growth. However, it cannot be ruled out that volatility in the oil market will remain at an elevated level.
• China is still a big unknown in terms of demand. It is worth noting, however, that the August data showed a clear rebound in imports to 49 million tonnes, which is above the 5-year average for the period, although slightly below the maximum level for August in the last 5 years.
• August imports were the largest this year, at 11.56 million barrels per day. In July, imports amounted to 42.34 million tonnes, while in August last year it was 52.8 million tonnes.
• Russian oil currently accounts for 25% of supplies to China. The second largest supplier of oil to China is Malaysia, which has larger quantities of oil imported from Iran and Venezuela.
• US oil stocks have recently fallen slightly and are near their seasonal low. Nevertheless, the global deficit suggests that stocks will decline or at least remain unchanged in the coming weeks.

US oil stocks are near a 5-year low. Despite this, WTI oil prices are still relatively low. Source: Bloomberg Finance LP, XTB

The crack spread has resumed declines in the US, indicating further demand problems. Meanwhile, prices have rebounded from around $66 to $72 per barrel. Source: Bloomberg Finance LP, XTB

China's oil imports rebounded in August. If the recovery continues, then oil prices could return to higher levels by the end of the year. Source: Bloomberg Finance LP, XTB

Gas:

• Gas prices are clearly gaining in response to the continued high gas consumption and the threat of production in the Gulf of Mexico.
• Currently, consumption is up to 10% higher than a year ago.
• Prices from rolling the futures contract have already increased by over 10%.
• However, seasonality related to the heating season suggests that price peaks are usually reached during November and prices decrease later.
• The futures curve indicates that the highest prices should occur in December (January contract).

Gas consumption currently remains at an elevated level. October is usually the beginning of the heating season. However, the moment when demand exceeds supply and gas is drawn from reserves usually falls in the first week of November. Source: Bloomberg Finance LP, XTB

Seasonality indicates that the price peak should be set in November. Source: Bloomberg Finance LP, XTB

Last year, gas prices increased by around USD 0.6 per contract after the September rollover. If the situation were to repeat itself, it would be a price equalization from the peak in June this year, above the level of USD 3.1/MMBTU. At the moment, the January contract is quoted at USD 3.6/MMBTU. Source: xStation5

Gold:

• Gold reaches another historical high in anticipation of further interest rate cuts in the US.
• At this point, the probability of a 50 bp cut in November has already increased to 50%.
• Goolsbee from the US believes that there is a chance for another such move, considering the still restrictive level of interest rates. Kashkaari points to the need to support the labor market with a larger cut this year.
• ETFs continue to buy gold. At this point, we are already recording the 3rd consecutive month of gold growth.
• The increase in gold prices in annual terms already exceeds 25%, which has happened extremely rarely in history. Nevertheless, gold is breaking out of 5 and 10-year seasonality, following long-term seasonality.

Long-term seasonality indicates a peak now, then in early November and at the end of December. Source: Bloomberg Finance LP, XTB

ETFs continue to buy gold, which net lasts for the 3rd month in a row. Source: xStation5

Cocoa:

• The European Cocoa Association stated that the European Commission's directive on deforestation, which is to come into force in December, could block a significant amount of cocoa and other agricultural goods to Europe.
• The deforestation directive will require traders of commodities such as cocoa, coffee, soy, etc. to prove that their goods do not come from land that has been deforested after 2020.
• Theoretically, this could lead to a price spike in Europe and increase the gap between the European and US markets.
• Cocoa stocks continue to fall, just before the harvest season, which usually starts in October.
• High cocoa prices from 2023 onwards have led to an increase in plantations worldwide, but the impact on supply may not be visible for about 4 years.

Cocoa stocks are at their lowest since 2008. However, the price remains below the important resistance of USD 8,000 per tonne, just before the start of the season proper. Source: Bloomberg Finance LP, XTB

The price remains below the important resistance of USD 8,000 per tonne and below the 50.0 retracement of the entire growth wave from this year. Theoretically, the start of the new season should be negative for prices, but everything will depend on the initial cocoa supplies. Additionally, from December, the European directive is to be in force, which prohibits the use of agricultural goods from deforested areas after 2020. This may limit the available supply for Europe and increase the prices of the highest quality cocoa. Source: xStation5