Commodity Wrap - OIL.WTI, NATGAS, GOLD, SUGAR (08.01.2024)

Oil

• Saudi Arabia decides to cut export oil prices for Asian countries to the lowest levels since 27 months. The price has been set $1.5 higher than the Oman/Dubai barrel price. In January, the export price was $2 above the benchmark
• The price of Saudi crude in Europe was also lowered compared to the benchmark of Brent Crude
• The move was said to be due to high competition in Middle Eastern countries and the still relatively high price from Saudi Arabia
• Prices in Asia have fallen more sharply than global prices in recent months, related to lower than expected demand growth and the belief that the market will not be as tight as it was in the first half of 2023
• Investors are still unsure whether a full voluntary OPEC+ cut of 2.2 million barrels per day will be enough to stem global inventory growth. The cut is set to last until the end of the first quarter for now
• The price of oil also fell sharply at the beginning of the week due to a 70,000 barrels per day increase in OPEC production in December. Moreover, OPEC continues to produce less than its production target (by about 600,000 barrels per day). This means that the real decline in production due to the voluntary cuts may be much smaller than the OPEC itself indicates

Oil inventories have been falling recently, which has also allowed comparative stocks to fall. This could mean that oil is once again near the bottom. It can be seen that important technical support for WTI is around the $70 per barrel level. Source: Bloomberg Finance LP, XTB

Oil is again close to the 5-year average, which has provided clear support for the price in the recent past. Nevertheless, it is worth remembering that a sustained break of the 5-year moving average is usually associated with a major market correction. Source: Bloomberg 

Gas

• Strong changes in weather forecasts compared to the end of last year. Temperatures in almost all of the United States are expected to be noticeably lower than previous years' averages on a weekly and bi-weekly basis
• The largest deviations from standard temperatures are expected to occur in key heating regions
• The price is testing the $3 area, despite a large price retreat at the beginning of the second week of January.
• Gas analysts point out that significant warming is expected after the current cold wave, which may offer a good chance for a correction
• Currently, the gas supply is sufficient and is still above the 5-year average and above the level of a year ago
• The increase in gas prices can also be combined with the turmoil in the Middle East, which may cause a delay in LNG supplies to Europe. On the other hand, prices in Europe are declining due to the expectation of rising temperatures in the near term and still high storage inventories

The latest weather forecasts for 6–10 days ahead show freezing temperatures. On the other hand, further forecasts show that temperatures are already expected to deviate less from standard, but are still expected to be lower. Source: NOAA

Gas stocks have again risen very strongly, and comparative stocks have risen to extreme levels (looking at the 1-year and 5-year averages). Last week's data showed a much smaller drop in inventories than expected, but demand is expected to be as high as 150 bcf in the coming days, with daily supply at around 100 bcf. Source: Bloomberg Finance LP, XTB

The price has reached $3/MMBTU. The next 2 weeks will bring a big drop in stocks, so look for a potential correction after that. Source: xStation5

Gold

• The key data for gold now will be inflation in the United States. If inflation rebounds sharply, it could change the outlook for US rate cuts. Inflation data will be released this Thursday
• At the same time, the New York Fed branch indicated that consumer inflation expectations in the short term have fallen to their lowest levels in 3 years, which supports a further recovery in the gold market and supports dollar weakness
• Consumers expect inflation to be below 3% in one year's time. In addition, inflation in 3 years is expected to be at 2.6%, and in 5 years at 2.5%. Still long-term expectations are high, but at the same time point to stabilization
• Gold initially lost ground after good US labor market data, but remains above $2,000 per ounce
• The key for gold may be bond yields, which have returned to the vicinity of 4%. However, if this is a temporary comeback and yields head toward 3.5%, a new historic peak in gold before the first downgrade cannot be ruled out.

Yields have rebounded somewhat, but if they go down to the lows of the second half of 2023, i.e. to 3.5%, gold will find justification in reaching new historical peaks. Source: Bloomberg Finance LP, XTB

Gold has been overvalued, looking at the 1-year and 5-year averages. It still remains clearly deviated from these averages, which may indicate stabilization in the coming weeks and a decrease in deviation from the averages. Source: Bloomberg Finance LP, XTB

Sugar

• Sugar rebounds from local low in last week of December 2023
• India is reducing restrictions on ethanol production, so sugar supply may not necessarily increase in the near term
• Nonetheless, there was high sugar production in Brazil at the end of the year, and concerns about sugar production in India and Thailand are diminishing
• At the same time, sugar production in Europe may remain at low levels, which may support sugar prices in the global market to remain at high levels
• Seasonality points to further medium-term increases. Sugar market speculators positioning is declining and will reach extremely low levels soon.

Low OIL prices support low sugar prices. However, if oil begins to rebound in the near term, there should be an increase in demand for biofuels, which could reduce the recent correction in the sugar market. Source: xStation5