Commodity wrap - Oil, gas, gold, coffee (23.01.2024)

Oil:

• Oil prices rose to start the week in response to potential supply issues related to the situation in eastern Europe and the Middle East
• A Ukrainian drone attack on Novatek's fuel terminal in Russia could cause supply delays
• In addition, the U.S. and the U.K. have launched further attacks on Huti positions in Yemen, again raising concerns about oil shipments across the Red Sea
• Low temperatures in the U.S. last week and this week could lead to lower temporary oil production, similar to the gas market, although this will also be a short-term factor
• JODI indicates that oil demand fell 0.4% y/y for November 2023 compared to November 2022. In addition, production of oil and other products fell 0.6% y/y over the same period
• OPEC report shows demand averaging 104.4 million barrels/day, a level nearly 2 million barrels/d higher than EIA forecasts
• EIA expects a balanced market from the second quarter of this year, while OPEC indicates a sizable deficit in the market
• However, oil is retreating on the second day of the week due to the lack of further escalation of the situation. It is worth noting that the conflict in the Middle East does not affect a permanent reduction in supply, only a delay in supply, which may result in higher fuel prices in Europe, but will not lead to permanent balance changes. Brent retreats below $80 per barrel again
• It is worth noting that US oil stocks relative to the 5-year average (comparative stocks) have fallen to their lowest level since October, when the price of WTI was near the $90 per barrel level. At the same time, however, current stocks compared to those of a year ago are marginally lower
• The DOE recently bought about 3 million barrels into strategic reserves

Comparative (5-year) stocks indicate relatively low oil prices. If inventories fall further, upward pressure on WTI crude oil can be expected again, to the vicinity of the $75-77 per barrel level. The DOE report is expected to bring as much as a 3 million brk drop in inventories, bringing commercial stocks to their lowest level in 3 months. Source: Bloomberg, XTB

WTI crude oil remains in consolidation. Seasonality does not indicate major movements in the near term, but we see that speculators' positions are at extreme oversold levels. Source: xStation5

Gas:

• After the recent roughly 15% roll-off, the gas price continues to fall due to expectations of a sizable thaw in late January and early February
• The price is currently trading near the lows of last April, just below $2/MMBTU
• Thursday's gas inventory report could bring as much as a 300 bcf drop in inventories. This would be the third time since 1990 that inventories have fallen so sharply. However, an analysis of the behavior of the price after those events does not indicate sustained upward pressure in the longer term following the release of such a report
• Our forecast indicates a decline in inventories of about 270 bcf. A smaller decline in inventories (below 250 bcf) would currently be perceived as very weak for gas prices, which would not warrant a rebound around the $2/MMBTU level

Inventories could fall at around 270 bcf, looking at the implied inventory change for last week. A smaller decline in inventories is already expected for this week, although next week's and fortnight's data could bring a minimal reduction in inventories. Source: Bloomberg Finance LP, XTB

The price is at its closest level since last April. Last year, the downward pressure ended in mid-February, after which we saw a 40% price rally, which eventually ended with a continuation of declines below the $2/MMBTU level. It cannot be ruled out that the price will begin to consolidate near the $2/MMBTU level and await further information on US gas demand and supply, which will depend largely on the weather. Source: xStation5

Gold:

• Gold remains under pressure from high yields and a strong US dollar
• If gold and Bitcoin were to move in an inverse correlation, a rally in gold would be warranted at present
• On the other hand, both Bitcoin and gold remain rather weak, despite the rally on Wall Street, which has favored both assets in previous months
• This week we will learn important data from the perspective of the US economy, such as GDP and PCE inflation. In addition to this, the European Central Bank will make a decision on Thursday, which may determine the further fate of the EURUSD pair ahead of next week's Fed decision

Gold remains under pressure and has not been seen reacting positively to declines in Bitcoin since the middle of the month. Technically, gold may set a short-term double peak formation with a target near $2,000 per ounce. Source: xStation5

Coffee:

• Further reduction in Robusta production worldwide puts very strong upward pressure on coffee prices
• The very strong rise in Arabica prices earlier this week is related to the continuing drought in Brazil, which is expected to affect production not only of this type of coffee, but also of Robusta
• On the other hand, last week CONAB released rather bearish data for coffee, indicating that coffee production will increase by 5.4% y/y this year to 58.1 million bags
• In addition to this, export group Cecafe showed data da December, in which 3.78 million bags were exported, an increase of 31% y/y. Government data showed an increase of 33.7% y/y
• Coffee stocks on ICE have been successively declining, but remain extremely low, showing that changes in coffee inventory reporting have not significantly changed the situation. Arabica price retreats, however, after strong rebound earlier this week

Stocks have been declining since December, but still remain extremely low. Source: Bloomberg Finance LP, XTB

The price of Robusta is rising strongly in late December and early January, while Arabica is lagging behind. Source: Bloomberg Finance LP, XTB

The price of coffee is capping the strong price rise of the last few sessions. Interestingly, we are seeing weakness in the Brazilian Real, which indicates prices are back below 180 cents per pound. Source: xStation5