Commodity wrap - Oil, Gold, Natgas, Cocoa (11.02.2025)

Oil:

• The market believes that sanctions on Russian oil are starting to take effect, potentially leading to increased demand from India and China for Arab or American oil.
• Key OPEC countries have raised prices for March deliveries to Asia.
• Politico's latest report suggests that EU countries may consider seizing ships operating within the "shadow fleet" transporting Russian oil.
• The United States is expected to take stronger action to enforce sanctions on Iran, which is currently exporting most of its oil to China.
• At the beginning of the month, OPEC+ indicated plans to increase production starting in April.

Uncertainty in the oil market is rising, leading to an increase in long positions. Currently, long positions have reached their highest level since Q1 2024. Source: Bloomberg Finance LP, XTB

In the U.S., the high crack spread may support oil prices at current levels or push Brent crude toward $75 per barrel. However, the recent increase in U.S. crude inventories contradicts the elevated crack spread. Source: Bloomberg Finance LP, XTB

Oil prices have risen more than 3% since the beginning of the week due to supply concerns. Potential targets for buyers are around $78 per barrel, followed by $79 per barrel at the 250-session moving average. Source: xStation5

Gold:

• Gold reached new all-time highs during the Asian session after Trump signed an executive order imposing a 25% tariff on steel and aluminum imports from all countries.
• However, gold experienced a correction in the second half of the Asian session, dropping from $2,940 to $2,900 per ounce, likely due to profit-taking. 
• Gold may react to comments from Jerome Powell, who could signal the Federal Reserve’s future interest rate plans. While the Fed seems to be in a wait-and-see mode, clear statements could trigger significant market moves.
• Gold also gained at the beginning of the new week following news that the People's Bank of China continued its gold purchases for the third consecutive month. In January, the PBOC bought 0.16 million ounces of gold.
• Under new regulations and a pilot program in China, insurance companies will be allowed to allocate 1% of their cash assets to gold. Initial estimates suggest this could translate into $27.4 billion in gold purchases.
• This would mean that, at current prices, Chinese insurers could buy approximately 9.44 million ounces—nearly 300 tons.
• Total gold demand in 2024, excluding OTC transactions, was around 4,500 tons.
• Central bank demand in 2024 exceeded 1,000 tons for the third consecutive year. Central bank and physical investment gold demand remain key drivers amid increased market volatility and uncertainty over jewelry demand.

The latest World Gold Council (WGC) report indicates that in 2024, the leading gold buyers among central banks were Poland, Turkey, and India. Source: World Gold Council

Despite recent strong gains, gold does not appear overbought based on the 1-year average. However, it is approaching an extreme overbought signal compared to the 5-year average (approximately four standard deviations from the mean). Source: Bloomberg Finance LP, XTB

The likelihood of a gold correction is increasing. Long and net positions have reached extremely high levels, suggesting a slight overbought condition. Source: Bloomberg Finance LP, XTB

Natgas:

• Natural gas prices continue to rise in the U.S. and Europe due to another winter storm.
• Recent forecasts indicate lower-than-average temperatures for the second half of February.
• The current price is testing $3.5/MMBTU, attempting to close the previous negative rollover gap. The difference between the nearest contracts is minimal.
• Weather forecasts suggest higher gas consumption in the coming weeks, potentially leading to heating season ending with stocks well below 2 TCF.

Gas consumption is increasing while production is declining, pushing gas prices to their highest levels since January 24. Source: Bloomberg Finance LP, XTB

Comparative inventories are already relatively low, signaling a potential start of a prolonged upward trend in the coming months. Source: Bloomberg Finance LP, XTB

Last week, inventories were expected to drop by about 100 Bcf, while this week’s draw could reach 200 Bcf. Source: Bloomberg Finance LP, XTB

The current rebound appears stronger than long-term averages would suggest. However, as the heating season will end in a few weeks, gas prices could decline to more attractive levels before the storage refill season begins. Source: Bloomberg Finance LP, XTB

In the European market, price increases are even stronger than in the U.S. Source: Bloomberg Finance LP, XTB

The current inventory draw is in line with the 5-year average, but in recent years, there has been a significant oversupply, making this shift surprising for the market. There is a high chance that the heating season will end with storage levels below 2 TCF. Source: Bloomberg Finance LP, XTB

Short-term forecasts show a sharp temperature drop in the Midwest, a key region for gas consumption in heating. Source: Bloomberg Finance LP, XTB

Cocoa:

• Sustained high cocoa prices due to harvest concerns are also creating uncertainty about demand.
• Hershey’s financial report indicated that high cocoa prices are forcing manufacturers to reduce cocoa content in products and replace it with other ingredients.
• Mondelez International noted declining cocoa and derivative product demand, particularly in North America, where chocolate sales are falling.
• A January report on Q4 demand showed that cocoa processing in Europe declined by 5.3% YoY to 332,000 tons. In Asia, processing fell by 0.5% YoY to 210,000 tons—the lowest level in four years. In North America, cocoa demand declined by 1.2% YoY to 103,000 tons.
• Although demand is falling, the decline is much smaller than the drop in production. However, the current season is significantly better than the previous one. As of February 9, cocoa arrivals at Ivorian ports were up 21% YoY. However, from October to December, the surplus compared to the previous season exceeded 30%.
• According to Maxar Technologies, the Harmattan winds affecting West Africa are the driest in six years, potentially worsening mid-season harvest prospects, which begins in April.
• At the end of January, the ICCO reported that global cocoa stocks at the end of the 2023/2024 season had shrunk by 36% YoY to 1 million tons, down from an earlier estimate of 1.3 million tons.
• ICE-monitored port inventories recently rebounded slightly after a decline, indicating a possible increase in contract-based deliveries rather than physical market supplies. If this trend continues, cocoa futures prices could rise in the coming weeks. However, there are no signs of increased speculative positioning.
• The CFTC reportedly approved a request for Hershey to purchase a large quantity of cocoa on the ICE exchange in the U.S. The purchase is said to be for 90,000 tons—nine times the usual limit.

Cocoa prices have pulled back significantly in recent days, increasing market uncertainty. Over the past five years, these are the largest declines seen in this period. Source: Bloomberg Finance LP, XTB

There has been no movement in speculative positions on cocoa futures contracts so far. However, movements across the entire futures curve are noticeable. In March and May contracts, contango has appeared, with the March contract trading about $150 lower than the May contract. Source: Bloomberg Finance LP, XTB