Commodity Wrap - Oil, Natural Gas, Gold, Coffee (20.02.2024)

Oil

• Citi indicates in its report that oil may rise to around $100 per barrel due to geopolitical factors
• Citi also points to the potential deepening of production cuts by OPEC+ countries
• Crude oil inventories in the United States remain significantly lower than the previous year, but the market is still oversupplied when looking at the 5-year average. There are no extreme inventory levels on a comparative basis
• Crude oil remains well-priced relative to the annual average, and there has been a rebound relative to the 5-year average
• There is still a significant discrepancy between demand forecasts from the IEA and OPEC. IEA expects only a 1 million barrels per day demand growth this year, while OPEC indicates a demand growth of 2.2 mb/d
• A substantial discrepancy is also visible for OECD countries. OPEC expects demand to increase by 200 kbd, while IEA indicates a decrease of 120 kbd
• IEA forecasts imply a slight oversupply in Q1 and a significantly larger one in the subsequent quarters if OPEC+ voluntary production cuts are abandoned
• China is expected to be the main driver of demand growth again. However, it does not seem that the rebound in air travel will have a significant impact on the increase in oil demand, making negative revisions possible in the coming months
• Currently, oil remains at elevated levels due to the continued attacks by Houthi militants on ships in the Red Sea

Oil remains well-priced relative to the 1-year average and has recently rebounded from the 5-year average. Source: Bloomberg Finance LP, XTB Research

Inventories compared to last year's levels are very low. On the other hand, oversupply can be observed relative to the 5-year average. Source: Bloomberg Finance LP, XTB Research

Natural Gas

• We are approaching the rollover of natural gas futures. This will have a positive impact on prices of approximately 5%. Rollover is neutral for positions, but it is important to remember to secure margin adequately and adjust TP (Take Profit) and SL (Stop Loss) positions accordingly
• It's worth noting that often there is an attempt to close the gap after rollover. Given that the current gap is not too large, the chances of closing the gap increase
• It is worth noting that the number of short positions has reached an extremely high level in the last 3 years, although it is not as high as in 2015, 2018, or 2020. However, closing of short positions could lead to a short-term rebound
• The net position is below the 10-year average, but there is no extreme overselling when looking at the position balance. Net position is also below the 1-year average
• Weather in the near future is expected to remain very good, with temperatures significantly higher than usual in almost all states. The exception is the West Coast, where temperatures are expected to be lower. However, heating needs on the coast are lower compared to the Midwest and the East Coast
• The 5-year seasonality indicates a potential low (it is important to remember that part of the rebound will result from rolling). The price is more than 3 standard deviations below the 1-year average and 1.3 standard deviations below the 5-year average. A strong bullish signal occurs when prices deviates by two standard deviations below the average.

The natural gas rollover will lift prices by approximately 5%. There is already a clear contango observed on the futures curve up to August. Source: Bloomberg Finance LP, XTB Research

The number of short positions (lowest chart) is at the highest levels in the last 3 years. At the same time, the number of short positions is still far from historically the highest values. Source: Bloomberg Finance LP, XTB Research

Natural gas is undervalued when looking at the deviation from the 1-year average, but there is still room for decline when looking at the 5-year average. Source: Bloomberg Finance LP, XTB Research

As seen, temperatures in key heating regions in the US are expected to be higher than usual. Source: Bloomberg Finance LP, NOAA

Gold

• The latest Citi report indicates that gold may rise to around $3,000 per ounce within the next 12-18 months. According to Citi, there could be a significant increase in demand for gold from central banks and a shift away from the dollar as the world's reserve currency
• Citi also points out the risk of a recession in the US, which could lead to faster interest rate cuts by the Federal Reserve (Fed). Gold will respond to the prospects related to interest rates in the US
• Examining the recent price reactions after the publication of FOMC meeting minutes, gold typically gained within the first hour, based on the last three events
• However, it is essential to remember that the Fed has recently taken a somewhat hawkish stance on interest rate outlook

Reactions on gold after the publication of FOMC minutes. Source: Bloomberg Finance LP

Gold appears to be high when looking at yields. If upcoming data from the US disappoints, yields should return to around 4% or lower. Source: Bloomberg Finance LP, XTB Research

Coffee

• Coffee is retreating under the pressure of a weakening Brazilian real, losing approximately 6% compared to the peaks from the previous month
• Coffee inventories have seen a slight rebound in recent weeks, although the growth is still minimal
• Rainfall in South America is improving the prospects for coffee production in the upcoming harvest season
• The prices of Robusta have slightly declined recently after a strong surge in exports from Vietnam. Nevertheless, Robusta has reached the highest levels in almost 30 years in recent weeks
• Robusta stockpiles on ICE have dropped to the lowest level in history. It is worth noting that the increase in costs for Robusta is also associated with the transportation crisis in the Red Sea
• Arabica coffee is also reacting negatively to news of a significant increase in Arabica exports from Brazil. Cecafe reports that the company's exports increased by 45% YoY in January to a level of 3.7 million bags, meaning more coffee is available in the market.
• Global coffee exports increased by 13.6% YoY in December, and rose 6.8% YoY for the October-December period
• The export group Comexim raises export forecasts for the 2023/2024 season to 44.9 million bags from the previous level of 41.5 million bags
• The latest Conab report indicates an increase in coffee production in Brazil to 58.1 million bags in 2024, representing a growth of 5.4% YoY
• The ICO report, on the other hand, points to an annual global production increase of 5.8% YoY to 178 million bags, with consumption expected to rise by 2.2% YoY to 177 million bags, implying an increase in stocks by 1 million bags

The price of Robusta has retreated slightly lately, while the price of Arabica has stabilized. It's important to emphasize that the price chart is set at 100 for January 1, 2020. Source: Bloomberg Finance LP, XTB Research

Coffee inventories have been growing recently and are already at the highest level since November. Source: Bloomberg Finance LP, XTB Research

The coffee price is testing the lower limit of the triangle formation. At the same time, a relatively high number of net positions is observed, which can be a contrarian indicator. Source: xStation5