Commodity Wrap - Oil, Gold, Copper, Coffee (31.08.2021)

Oil

• Oil prices increased following the landfall of the Ida hurricane on the US Gulf coast. Almost 2 million barrels of daily production has been shut down. Of course, shut down is temporary and operations have already started to resume

• Simultaneously, activity of refiners dropped by around half, much less than the drop in production. This suggests that oil inventories should drop sharply in the coming weeks

• OPEC+ is content with the current oil price levels (Brent near $70 per barrel), suggesting that policy of boosting output by 400k bpd each month may be maintained

• OPEC+ meeting is scheduled for September 1, 2021 (this Wednesday)

• Some uncertainty could have been spotted on the oil market at the beginning of the week as investors were unsure whether and how will OPEC+ react to weaker demand outlook

• WTI continues to trade in a downtrend structure even in spite of weaker US dollar

• Moreover, oil is heading for the biggest monthly drop since October 2020

Downtrend structure on oil remains clear even in spite of recent rebound. Crude continues to trade below the downward trendline. Source: xStation5

Interestingly, speculators trim their bets on oil. Number of open long positions dropped sharply while the number of open short positions increased slightly. As a result, net speculative positioning dropped . Source: Bloomberg

Gold

• Gold benefitted from a relatively dovish speech from Powell on Friday

• Interestingly, US yields did not drop as much as the US dollar did. USD may be a key factor for gold going forward

• US jobs report set for release this Friday may change outlook for USD, yields and, of course, gold. Jobs addition of over 800k could make markets once again start worrying about tapering

• Taking a look at price performance over the past 3 months, the zone ranging between $1,827 and $1,833 looks to be a key resistance

• History shows that gold price has experienced a strong negative reaction to the taper announcements. This makes September's FOMC meeting a key for gold traders

• Speculators continue to boost bullish bets on gold futures while ETFs slowed down the pace of gold sales

Gold trades slightly below the first major technical resistance - $1,827-1,833 zone. Downward trendline marks the next major resistance. Source: xStation5

Net speculative positioning on gold sits at the highest levels since May. Pace of ETF gold sales has slowed down recently. Source: Bloomberg

Copper

• Copper started the week with a bullish gap as a result of USD weakening

• Moreover, it is rumoured that PBOC may decide to cut reserve requirement ratio further in order to stimulate domestic demand

• BMO Capital Markets says that copper scrap is unavailable in China, what may lead to increase in demand for refined copper

• High aluminum prices suggest that demand for copper should improve as well (primarily from the construction sector)

• On the other hand, 2022-2023 outlook looks less favourable for bulls due to expected large increase in supply

Price of copper scrap did not experience similar declines as futures for refined copper. One may expect demand for refined copper to increase given that copper scrap is currently unavailable in China. Source: Bloomberg

Copper stockpiles on Shanghai exchange continue to drop, what may support short-term price recovery (assuming that USD will not strengthen significantly). Source: Bloomberg

Coffee

• The latest coffee price jump and return to 200 cents per pound area can be to some extent reasoned with strengthening of the Brazilian real

• Tough restrictions put in place in Vietnam may hamper not only demand but also supply. It should be noted that Vietnam is world's largest Robust coffee producer

• Rabobank says that recent travel restrictions may make it difficult to transport coffee to export ports

• Prices of Robusta coffee jumped above $2,000 per tonne, the highest level since early-2018

• Outlook for Brazilian coffee crops will depend on how the rainfall season progresses (beginning of September). Plants that have survived recent drought and frost are in need of rainfall. Should rains not arrive, outlook for Brazilian production may be lowered further

The latest price jump on COFFEE can be to some extent reasoned with strengthening of the Brazilian real. Potential supply issues in Vietnam as well as continued uncertainty over Brazilian production may help lift prices further. Price gains may be especially rapid in case rainfall does not arrive in Brazil at the beginning of September. Source: xStation5