Commodity wrap: Oil, gold, platinum, coffee (22.06.2021)

Oil:

• Brent crude oil broke above $ 75 a barrel despite the rising US dollar
• Worldwide demand is rebounding, also due to the summer seasonality
• However, OPEC + knows that it cannot make the same mistake as it did in the past, which is to keep production too low for a long time, or to raise it very quickly
• At this point, OPEC + is already discussing a further increase in production from August. At the moment, the agreement on moderate production increases lasts until the end of July. Therefore, a decision has to be made in the coming weeks.
• Russia has been pushing for a further increase in production since August
• Bank of America says a travel rebound in 2022 will push oil prices up to $ 100 a barrel. However, there are predictions that the price could reach $ 130 a barrel by the middle of the decade.
• However, it is worth remembering about Iran. We should see more Iranian oil on the market in August, which could potentially limit the upward move. Still, the $ 80 level is within reach
• Increasingly steeper backwardation at the short end of the curve, increasingly flatter curve at the long end. Brent above $ 60 by 2029 on time.

Brent crude oil will remain above $ 60 a barrel until 2029, according to the forward curve! Source: Bloomberg

Brent crude oil retreated from $ 75 a barrel. Source: xStation5

Gold:

• Gold has plunged sharply in response to some steps taken by the Fed towards normalization
• Bullard, a voting member of the FOMC, points to the start of tapering talks
• Nevertheless, yields in the US remain low and the dollar is responsible for the weakness of gold
• The amount of gold held by ETFs remains unchanged, but there is a reduction in long positions on the speculators' side. However, these are not such strong movements as, for example, in the copper market.

ETFs keep the amount of gold in their vaults unchanged. Source: Bloomberg

Gold is trading in a downward sequence. If the current sentiment prevails, then the downward movement could even reach support at 1,600 USD per ounce. On the other hand, one should also observe the behavior of bond yields. Recently, sellers made  an attempt to break below 1.4%. The further fate of gold will depend on the dollar and bond yields, although currently to a lesser extent. Source: xStation5

Platinum

• A massive drop in platinum prices, mainly related to gold prices
• The recent declines in prices are also linked to the attempts by the Chinese government to limit the rise in industrial metals prices, which is clearly visible in copper prices
• In addition, there has also been a reduction in the production of cars due to the shortage of other parts - computer chips. The rest of the year should be better in terms of demand
• The long-term outlook is still very positive due to the use of platinum in hydrogen cells

Looking back at 2008, one can observe that platinum sometimes behaved like an industrial metal in a period of significant economic recovery. If the economic recovery continues, then the prices of precious metals used in industry should start to rise again. Source: xStation5

Coffee:

• The ICO pointed out in its latest report the highest price levels since 2017. Spot prices are at the highest level since the end of 2016
• The ICO still expects oversupply in 2020/2021, albeit on a smaller scale than before. Currently, the organization sees an oversupply of 2.01 million bags compared to the previous 3.28 million.
• However, the ICO points to a rising level of certified inventories which have been increasing every month since September last year. Arabica inventories on the New York and London stock exchanges amount to 2.21 million bags, while in the case of Robusta it is 2.67 million bags.
• Coffee is well priced by Brazilian Real. Real has further growth prospects thanks to interest rate hikes. Nevertheless, the key factor for coffee will be a further rebound in demand. Currently, the market is increasingly concerned about the return of a large oversupply in the coming seasons.​​​​​​​

Coffee appears to be well priced by the Brazilian real, though the movements in recent months have been driven by other factors as well. Source: xStation5