Commodity wrap- Oil, gold, soybean, coffee (09/15/2020)

11:23 15 September 2020
Oil:
  • Brent continues to trade below $40 a barrel
  • The latest OPEC forecasts were not very negative, yet still predict a drop in demand of over 10 million barrels this year
  • Libya poses a high risk regarding further rebound in oil prices. Currently, production dropped below 100,000 barrels per day, while in December production was above 1 million barrels per day
  • Libya is dealing with a long-standing conflict between military commander Khalifa Haftar and the government in Tripoli which is supported by the United Nations. However, a ceasefire was signed in mid-August, which may result in a rebound in production
  • In the short term, the lingering hurricane threat may positively affect the WTI oil price (possible further short-term decline in production). However, US inventories began to rebound in line with seasonality
  • OPEC and Bloomberg expect a decline in demand this year at 10mbbl / day. Previously, inventories were expected to decline by around 5-7mbbl / day in 2020.

It is expected that the fall in demand this year will amount to as much as 10 million barrels per day. Source: Bloomberg

Brent  is trading below $40 a barrel. Seasonality, which is related to oil inventories, indicates possible further  declines. Additionally, there are concerns about the lack of a rebound in demand and the risk of a rebound in supply. Source: xStation5

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Gold:

  • Attempt to break out of the triangle formation through upper trendline after the EURUSD and TNOTE increases
  • The $1,925 level and the zone below create key support for gold
  • ETFs are still buying gold, long positioning rebounded slightly.

Positioning has slightly rebounded. Gold is still bought by ETFs. Source: Bloomberg

Gold is trading in a triangle formation. Potential breakout is supported by higher levels on EURUSD. Source: xStation5

Soy:

  • Soybean price above 1,000 cents per bushel, for the first time since mid-2018
  • Soybean and corn benefit from the latest forecasts and the strengthening of the Brazilian real, which weakens the competitive position of local products
  • Another decline in the quality of crops in the United States (from 65% to 63% - the share of crops recognized as good and excellent quality)
  • The latest WASDE report showed a decline in expected production (slightly less than expected) and a huge reduction in inventories (including  inventories from the old season)
  • Long positions at the highest since 2018, short positions at extremely low levels as in 2016 and 2017. Net positions are not yet as high as in 2016 and 2018
  • The seasonality indicates that we can still count on soybean prices to rise. Similar increases and fundamental factors are currently being observed in the corn market.
  • On the other hand, exports from the US to China are not very high. Key weeks ahead as the US harvest season begins.
  • The US elections will also be important for the soybean market in the context of trade with China

Production and, above all, inventories have been significantly reduced according to the latest WASDE report. Source: Bloomberg

Net positioning is heading towards extremely high level. On the other hand, the seasonality points to further increases. Source: Bloomberg

Soybean prices are at their highest since 2018, the time the U.S.-China trade war began. The seasonality indicates possible further increases, though positioning is starting to show signs of being overbought. The nearest strong resistance is located around 1,070 cents a bushel. Source: xStation5

Coffee:

  • Coffee price drop by almost 8%. The key levels for bulls are located around 120 and 115 cents per pound.
  • Strong overbought in terms of speculative positioning. Highest net positioning in 4 years
  • Coffee inventories continue to decline. Almost vertical inventory chart (reverse axis on the chart)
  • Coffee sale-off  has been triggered by concerns about good weather in Brazil and concerns that Brazilian coffee will "flood" ICE warehouses. So far, however, no such practice has taken place.
  • A slight flattening of the forward curve indicates the possibility of an immediate increase in demand due to concerns regarding the short-term coffee shortage

Coffee price fell 8%  yesterday, which was the biggest daily drop in several years. The key support levels are located at 120 cents and 115 cents a pound. Source: xStation5

Inventories are still low (lowest since 2000) and continue to decline. Source: Bloomberg

The forward curve has slightly flattened at the short end, which may indicate return of demand in the short term. Source: Bloomberg

This content has been created by XTB S.A. This service is provided by XTB S.A., with its registered office in Warsaw, at Prosta 67, 00-838 Warsaw, Poland, entered in the register of entrepreneurs of the National Court Register (Krajowy Rejestr Sądowy) conducted by District Court for the Capital City of Warsaw, XII Commercial Division of the National Court Register under KRS number 0000217580, REGON number 015803782 and Tax Identification Number (NIP) 527-24-43-955, with the fully paid up share capital in the amount of PLN 5.869.181,75. XTB S.A. conducts brokerage activities on the basis of the license granted by Polish Securities and Exchange Commission on 8th November 2005 No. DDM-M-4021-57-1/2005 and is supervised by Polish Supervision Authority.

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