Commodity Wrap - Oil, Natural Gas, Gold, Cocoa (14.02.2023)

Oil

• Russia informs that it will cut production by 500 thousand barrels per day starting from March

• The announcement failed to trigger a rally on the oil market with crude price remaining stuck in trading range

• Russia needs to sell large quantities of oil to finance its budget and war spending. Goldman Sachs says that price at which Russia oil is traded is much lower than hinted by URALS futures

• Analysts expects that Russia will attempt to boost price of oil, what may help alleviate spread between Russian oil and global benchmarks

• Arab countries warned that low prices and ESG actions may lead to lack of investments and not sufficient supply in the future

• Russia says that 80% of its oil will be sold to 'friendly' countries in 2023 while this share for oil derived products will stand at around 70%

Goldman Sachs says that Russia crude is being traded at prices even below Russian URALS benchmark. Difference from Brent benchmarks may be already exceeding $30 per barrel. Source: Goldman Sachs

While Brent (OIL) remains in trading range, price has climbed recently. Source: xStation5

Natural Gas

• Natural gas prices enter a sideways move, what may signal that local low has been reached

• Interestingly, NATGAS reacted with a drop to news of exports being resumed from US Freeport LNG terminal. Export levels are far from maximum but reaching those is likely a matter of weeks

• Number of heating degree days in the United States remains close to 5-year average, what may hint that reduction in stockpiles should be limited to 100-200 billion cubic feet

• Weather outlook for United States has changed once again and now temperatures are expected to increase by the end of February

• Gas consumption in Europe remains limited, stockpiles are being reduced in-line with 2020 pace

Freeport terminal resumed operations. Nevertheless, the terminal is still operating far below its capacity. Increase in stockpiles will be reduced by 12-15 billion cubic feet once full capacity is reached. Source: Bloomberg

Number of heating degree days in the United States remains in-line with the 5-year moving average, even in spite of relatively high temperatures. Source: Bloomberg

Temperatures in the United States remain relatively high and the end-of-February period is expected to be even warmer. Source: Bloomberg

Stockpiles in Europe are being reduced at a relatively slow pace. Heating season should finish with gas inventories being over 50% full. Source: Bloomberg

NATGAS is trading sideways, which may signal that a bottom on the market is forming. Source: xStation5

Gold

• Gold market has had one of the best years when it comes to total demand

• On the other hand, investment demand remains a mystery. Weaker US dollar should generate additional demand from China and India

• Demand for ETFs is non-existent at the moment

• Speculators are also less active as of late - net positioning is flat

• Price is pulling back on the back of a stronger US dollar and higher yields. This may resemble situation from March 2021 and in such a scenario a correction towards $1,800 per ounce area cannot be ruled out

Gold is pulling back but holding above $1,850 per ounce price zone. If USD strength persists into March amid expectations of the next FOMC move, a test of the $1,800 area cannot be ruled out. Source: xStation5

Cocoa

• Exporters from Ivory Coast signal troubles with fulfilling contracts due to lack of seeds

• Simultaneously, ICCO hints that a price correction should be expected following recent strong gains

• According to ICCO, commercial investors are excessively negative on prices in near-term

• Seasonal patterns hint that price should peak in near-term - it should happen this month or in April

COCOA experienced steep gains in recent weeks but according to ICCO, significant correction is looming. Source: xStation5