Commodity Wrap - OIL.WTI , Gold, Natgas, Coffee (26.11.2024)

Oil 

• Oil reacted with declines to a potential ceasefire between Israel and Hezbollah, which would be expected to reduce risks regarding further escalation between Israel and Iran.
• Iran currently accounts for about 1.5 million barrels per day of oil exports, but from a market perspective, the Strait of Hormuz, which could potentially be blocked by Iran, is key. 20 million barrels of oil per day pass through the strait, accounting for about 20% of total global supply
• Oil may remain under pressure in the medium term due to the likelihood of more drilling permits being issued. Theoretically, this could lead to an increase in production at the end of next year no more new records
• OPEC+ meets again in late November and early December. It is expected that the start of restoring production to the market could again be postponed. The first option points to February, and the second to the second quarter of 2025

Iran is of limited importance in the global oil market in terms of exports, but is important because of geopolitics. Nevertheless, a 1-2 million brk drop in production for Iran could be a strongly pro-growth factor. Source: Bloomberg Finance LP, XTB

Crude oil has strongly capped the recent rebound, but remains above the upward trend line (at the same time, which is the neckline of a potential head and shoulders formation). An important supply zone is located below the level of $72.5 and near the level of $70.5 per barrel. Source: xStation5

Gold

• Strong declines in the gold market at the beginning of the last week of November were related to the possible reaching of a ceasefire between Israel and Hezbollah
• The ceasefire, which could be signed on Tuesday, November 26, would be in effect for 60 days and would involve the exit of Israeli troops from Lebanon
• Hezbollah, in turn, would end its presence near the Litani River in Lebanon, and the Lebanese military would be directed to that location
• The agreement would be vetted by the United States and a committee of 5 countries
• The price drop shows how much of a risk premium is in the current gold price
• At the same time, the price of gold may depend on the interest rate situation in the US. Tonight, out of the ordinary, the FOMC minutes will be published
• If it turns out that bankers prefer to wait with further cuts, gold prices could come under pressure again. 

The support for gold from interest rate cuts runs in line with what has happened in the past. If history were to repeat itself (which would likely require a continuation of the policy of lowering next year), gold should gain in at least two years from the first cut. Source: Bloomberg Finance LP, XTB

Natgas

• The weather in the U.S. has changed dramatically, and forecasts now indicate temperatures in almost half of the U.S. are expected to be noticeably lower than standard
• Lower temperatures are also occurring in Europe, resulting in a stronger decline in stocks relative to what the 5-year average shows
• Donald Trump is expected to implement a plan to approve new LNG export terminal projects within the first days of his administration. In theory, this is good news in the long term for the countries receiving this gas, which would further increase competitiveness. On the other hand, it's negative news for U.S. consumers, for whom less gas would theoretically be available
• On the other hand, Trump's new administration is also expected to increase the number of drilling permits around the U.S. coast and on government-owned lands. This could potentially drive down oil and gas prices in the shorter term
• It is worth noting, however, that Biden has put a hold on further authorizations to increase LNG exports for January, although these decisions could be quickly reversed with Trump's inauguration on January 20

Gas inventories in Europe have begun to fall faster than normal and more strongly than seasonality would suggest. While there should be no problems in terms of the current heating season, problems ahead of the next one cannot be ruled out, which could push up prices in Europe. Source: Bloomberg Finance LP

Weather forecasts for the coming days point to noticeably cooler temperatures in key areas of the United States. Source: Bloomberg Finance LP, XTB

Long-term seasonality points to declines in the near term, but low temperatures could push gas prices even above $4/MMBTU. Source: Bloomberg Finance LP, XTB

The gas price is testing the highest levels since late October/early November last year. Further lowering temperatures could push prices toward $4/MMBTU, although seasonality clearly points to further price declines (although the price decline itself is also related to the shape of the forward curve). Source: xStation5

Despite the cold temperatures, gas consumption is within the 5-year range, and production has returned to around the 5-year maximum. If gas inventories do not fall harder than expected, it could be that gas will soon begin to fall in line with seasonality. It is also worth remembering that the current forward curve is not in contango for the next few months. Source: Bloomberg Finance LP, XTB

Coffee

• Arabica coffee rose to its highest levels since the mid-1990s, piercing the previous local peak near 308 cents per pound in 2011. 
• It is worth noting, however, that the highest levels on record from the second half of the 1970s did not exceed 350 cents per pound
• The projected oversupply in the market is likely to be markedly reduced, given the markedly negative weather in South America, primarily Brazil
• The dry weather means that the potential for coffee bean growth in the coming months has been significantly reduced
• Current indications are that the expectation of a 3% increase in Brazilian production compared to last season may be revised to indicate even a decline in production
• USDA recently revised data and indicated that production for the 24/25 season will be 3.5 million bags lower than earlier projections
• Stocks on exchanges continue to rise slightly, but continue to remain extremely low by historical standards. High prices on exchanges are expected to cause Brazilian stocks next year to fall to historic lows

Stocks on exchanges are rising, but remain extremely low by relative historical standards. Source: Bloomberg Finance LP, XTB

This is the 4th time in history that the price has been above the 300 cents per pound level. However, the price remains in strong backwardation, with the 2027 price at 200 cents per pound. Source: Bloomberg Finance LP, XTB

The increase this month is already more than 20%. If the price were to behave similarly to the previous strong growth trajectory, the price is reaching potential peaks. However, if we pay attention to the upward wave of 2008-2011, assuming similar movements, the price could extend the increases even to the level of 350 cents per pound, which would be new historical records. Source: xStation5

Looking at returns since 2010, Arabica coffee has even surpassed Robusta and cocoa. Source: Bloomberg Finance LP, XTB