Commodity Wrap - Oil, Gold, Corn, Coffee

Oil

• Oil pushed higher as tensions in the Middle East increased

• War near or blockage of the Strait of Hormuz is the key risk for oil market

• Around 21 million barrels of oil pass through the Strait of Hormuz each day (around 20% of global demand)

• Free in-land transportation capacity amounts to just 3.8 million barrels per day

• OPEC and Russia could use the situation to boost production

• Crude oil stocks declined significantly in the final week of 2019. According to seasonal patterns, oil inventories should start to rise now

Around 21 millions barrels of oil pass through the Strait of Hormuz each day. Source: EIA

Oil stockpiles declines significantly at the end of 2019. According to seasonality, inventories should rebound in the first quarter of the year. Source: Bloomberg

Gold

• Major reactions on the gold market to Middle East tensions

• Gold price reached the highest level since April 2013

• Range of a potential breakout from 2015-2018 triangle pattern has been almost realized

• According to seasonality, January is the best month for gold market

• Investment demand and purchases of the central bankers were mostly flat in the final quarter of 2019

• ETFs increased gold holdings by just 0.5% in Q4 2019

• However, investment demand held quite firm throughout the previous year

Investment demand and central bank purchases accounted for almost half of total gold demand in 2019. Source: Bloomberg, XTB Research

Significant increase in the number of long positions at the beginning of 2020. Positioning sits near extremes from 2016. Source: Bloomberg

Gold trades at the highest level since April 2013 and near the 61.8% Fibo level of 2011-2015 downward move. Potential range of the triangle pattern can be also found there. Source: xStation5

Corn

• In spite of China’s assurances to increase agricultural purchases starting from 2020, corn price barely moved

• China purchases of corn for the production of ethanol could be an opportunity for corn

• Closing a supply gap of 8 million tonnes of ethanol would require around 25 million tonnes of corn

• 25 million tonnes of corn is more than a half of forecasted US stockpiles in the 2019/20 season

• Number of long position rebounds off the extremely low levels, what may herald a rally

China plans to increase ethanol content in gasoline to 10%. Such a move would require enormous amounts of ethanol. Source: IHS

Corn prices have been trading sideways for a long time. Potential significant increase in demand could be a trigger for a major price rally and a break out of the consolidation range. Source: xStation5

Coffee

• Major pullback occurred on the coffee market at the beginning of a new year

• Price realized range of the major correction in a downward trend

• Coffee stockpiles began to consolidate

• Major divergence between the number of long and short positions. Number of long position is still far off the extremes

Coffee stockpiles began to consolidate. Similar situation occurred in 2016 and was followed by a drop similar to the one we are observing right now. However, price started another upward impulse later on. Source: Bloomberg

Number of long positions is still far off the extreme levels. Source: Bloomberg

Coffee could have already realized the range of a rally similar to the one from 2016. On the other hand, it cannot be ruled out that it is just a correction. Source: xStation5