Commodity wrap - Oil, Natgas, Coffee, Cocoa (30.01.2025)

Oil

• U.S. oil inventories are now rising in line with seasonality, showing that even with a global deficit in the first quarter, prices could come under pressure
• Oil prices have come under pressure due to uncertainty over trade tariffs on Mexico and Canada. Trump initially threatened tariffs of 25%, but the new Commerce Secretary indicates that the imposition of tariffs is not yet certain. Moreover, there is a good chance that these tariffs will not apply to energy commodities
• Trump is also calling on OPEC to lower oil prices, which would happen if production is raised. Currently, OPEC+ is keeping the cut agreement unchanged and the first production increases are scheduled for April at this point
• From a supply perspective, further U.S. moves on sanctions on Russia, Iran and Venezuela will be key. Bank of America is downgrading the outlook for oversupply this year due to the expected negative impact of sanctions on production in these countries. At this point, however, there is a lack of specifics in relation to U.S. policy 
• The announced “drill baby drill” policy is also worth a look. The current price of WTI crude oil is falling in the neighborhood of $72 per barrel. Large companies need a price of $26 per barrel to cover the costs associated with maintaining current wells. Small companies need an amount of $44
• For new investments, these costs are already higher. Large companies need an average level of $58 per barrel, while small companies need $67 per barrel. However, it is worth noting that these are average levels. In the key shale region in the US - the Permian - the marginal price ranges from about $38 to $90 per barrel

Dallas Fed survey of oil companies. Average marginal costs for new projects indicate price levels of $60 to $70 per barrel. Currently, the price is falling close to that level, so without tax incentives it may be difficult for US oil production to increase significantly this year and beyond. Source: Fed Dallas

Oil companies in the U.S. expect prices to remain higher than they are now, although at the same time the range of forecasts over a 2-year horizon is clearly changing, which may indicate that the next stage of the shale revolution is coming again. Source: Fed Dallas

Although oil inventories remain lower than last year and relative to the 5-year moving average, we have recently seen an increase in inventories that justifies, in part, a decline in prices. Source: Bloomberg Finance LP, XTB

NATGAS

• The weather outlook in the US has clearly changed. Higher temperatures are expected in early February, and these are expected to persist through most of February
• Already there are big changes in daily fundamentals. On Wednesday, U.S. gas production was expected to be 105.5 bcfd, while demand was expected to fall to just above 100 bcfd. Of course, to this we have to add LNG exports, which rose significantly week-on-week to 14.3 bcfd
• The price of gas has been declining markedly since mid-January (including a large roll-off of futures contracts). It is worth noting, however, that there may be more volatility this afternoon. 
• The market is expecting a decline in inventories of more than 300 bcfd, which was related to the extremely high consumption in the previous week. At the same time, however, in the past, reports showing a decline of 300 bcfd have been the points at which larger gas market corrections have begun
• Last year, gas consumption fell below supply as early as March. If U.S. inventory levels were to stall at 2,000 it will take an average maximum decline of 80-100 bcf per week over the next 9-10 weeks.

The weather outlook has changed significantly in the US. Demand for gas for heating purposes has dropped noticeably. Source: NOAA

Gas demand has fallen to a 5-year average. If demand falls below 100 bcfd it could pull off another wave of sell-offs for gas in the short term. Source: Bloomberg Finance LP, XTB

Last year, the correction that began in January resulted in a more than 50% correction in the price of gas. Currently, the correction is less than 30%. A correction of about 40% would mean a potential drop to $2.5/MMBTU while 50% would mean a drop to $2.2/MMBTU. Seasonality assumes further declines, at least until early February. Source: xStation5

Coffee

• Coffee is rising to new historic highs, primarily due to the lack of improvement in production prospects in key countries such as Brazil
• In addition, stocks in Brazil remain extremely low, globally stocks have begun to fall, and farmers are reluctant to dispose of leftover stocks due to uncertainty, resulting in low availability of coffee on exchanges for delivery
• In addition, Donald Trump announced the imposition of 25% tariffs on Colombia, which could lead to further increases in coffee prices as the country is the world's second-largest producer of Arabica
• The U.S. imports approx. 30% of coffee from Colombia
• However, there are worrying reports that coffee producers are seeing a slowdown in demand due to high prices. In Vietnam, there is a problem with a lack of large orders. In Indonesia, coffee roasters are switching to lower quality beans. We are also seeing a decline in shipments from Brazil to China. 
• CONAB's latest forecasts indicate that coffee production for the 25/26 season is expected to decline by 4.4% y/y. Production is expected to be 51.8 million bags. The decline is expected to be in Arabica coffee at 12.4% y/y. On the other hand, production of Robusta, which is produced in another region of Brazil, is to increase. The increase is expected to be 17.2% y/y. Brazil is the second producer of Robusta after Vietnam
• Brazil will export 50.5 million bags of coffee in 2024, an increase of nearly 30% y/y. However, given low stocks, it will be impossible to achieve such a result in 2025. 
• Brazil's stocks currently stand at 13.7 million bags, a decline of almost 25% compared to 2023

The low availability of inventories for grading is causing stocks to start falling again at this point on the exchanges. Source: Bloomberg

Inventories have started to fall again (inverted axis). Source: Bloomberg Finance LP, XTB

Coffee continues to rise to new historical highs. Given the lack of prospects for improvement, an attack on the 400 cents per pound level in the coming months cannot be ruled out. At the same time, key supports for coffee are the upward trendline and the zone between 330 and 350 cents per pound. Source: xStation5

 Cocoa:

• Concerns persist in the cocoa market about the current crop and, above all, the so-called mid-season harvest, which led to the largest increases in 2024
• Stocks for consumption have fallen to 27% according to ICCO data, the lowest level in 40 years
• Côte d'Ivoire indicates that the upcoming midseason could be the worst in a dozen years, which is expected to make filling all orders extremely difficult
• Barry Callebaut indicates that it still sees the potential for oversupply this year, which is also related to the demand issue.
• Cocoa stocks on exchanges and among producers continue to decline. ICCO indicates that end-of-season stocks have fallen to 1 million tons, a decline of more than a third. Stocks on exchanges stand at 1.3 million bags

Cocoa stocks continue to decline, keeping the price above $11,000 per ton. Source: Bloomberg Finance LP, XTB

Prices rose more strongly last year, while it is worth noting that the increase at the beginning of the year was also seasonal, looking at a 5-year average, ending in 2022, to eliminate the effect of recent years with extreme deficits. Source: Bloomberg Finance LP, XTB

The price remains above $11,000 per ton. Key supports are the rising trendline and the 50 SMA. Last year, the 50-period average was unbroken from the beginning of January to the end of April. Source: xStation5