Commodities Wrap - Oil, Natgas, Gold, Coffee

Oil:

• Donald Trump signed an executive order to withdraw from the Paris Agreement, aiming to boost the extraction sector in the United States

• Trump plans to issue permits on federal lands and reverse previous bans imposed by Biden. Trump also intends to enable extraction in Alaska and reverse the recent offshore drilling ban

• Trump also announced plans to replenish strategic oil reserves, which were heavily depleted by the Biden administration to stabilize prices

• Scott Bessent, the new Treasury Secretary, announced before Trump's inauguration that he is ready to impose full sanctions on the Russian oil sector. This situation could potentially limit oil exports from Russia, although over 90% of supplies are currently directed to China and India

• Donald Trump's speech lacked specific statements regarding the war in Ukraine and potential sanctions on Russia. However, this could potentially lead to a short-term price increase above $100 per barrel

• There were also reports that if Russia enters negotiations, the US might lift some restrictions on Russia as a gesture of goodwill

US strategic reserves are growing, but at a very slow pace. Trump wants to replenish the reserves depleted by the Biden administration in recent years. Source: Bloomberg Finance LP, XTB

Commercial inventories in the US also remain at very low levels. The first quarter of this year is expected to bring a global oil market deficit, therefore the seasonal increase in commercial inventories is uncertain. Source: Bloomberg Finance LP, XTB

Oil has gained since the beginning of this year, while seasonality indicates larger increases in February. Source: Bloomberg Finance LP, XTB

Oil prices have dropped significantly in recent days due to lack of prospects for further supply restrictions. However, if Trump starts threatening Russia with sanctions, the situation could quickly reverse. Source: xStation5

Gas:

• Gas prices clearly retreated at the turn of the week from the level of 4 USD/MMBTU

• Earlier increases were related to a sharp decline in inventories, which was associated with low temperatures

• Low temperatures currently persist in the US, while gas consumption is rising to the highest levels in the last 5 years for this period

• If consumption maintains at the current level, the gas inventory decrease for the current week could reach over 300 bcf

• However, weather forecasts indicate a change at the turn of January and February

Gas demand in the US is currently the highest in 5 years. The potential inventory decrease could reach over 300 bcf for the current week, while the upcoming data should show a decrease in inventories below 200 bcf. Source: Bloomberg Finance LP, XTB

Gas consumption is currently very high. A lot of gas is also used for electricity production, while gas production is falling close to the 5-year average. Source: Bloomberg Finance LP, XTB

In terms of seasonality, we should observe inventory decreases over the next few weeks, although the decrease may result solely from the shape of the forward curve. Source: Bloomberg Finance LP, XTB

NATGAS is testing support at the 23.6 retracement and at the 15-period average. However, NATGAS will likely fall below these levels after rolling forward contracts. Currently, the rolling will be the last major one and will amount to -44 cents. Source: xStation5

Gold:

• From gold's perspective, market uncertainty about the future persists, even despite the signing of a ceasefire between Israel and Hamas, and the US's lack of imposing large tariffs in the first hours of Trump's presidency

• Trump's policy in the first part of his term may, however, lead to inflation revival, although what happens with oil and fuel prices will be crucial

• Currently, the first full rate cut from the Fed is priced in for June. In January, the chances are almost zero, while March prices in 30% probability of a cut

• Gold reaches today the highest levels since November 6, i.e., since the sell-off that took place after the US elections

• The gold rebound is also supported by the recent bond price rebound, which simultaneously means a yield decline

Gold is testing the highest levels since November 6. It's less than 2% away from historical highs. Source: xStation5

Coffee:

• Coffee prices are returning to historical highs and are currently traded in the upper range of consolidation that began in the first half of December

• Coffee prices have risen recently most likely due to emerging concerns about production not only in Brazil but also in Vietnam

• In Brazil, rainfall in recent weeks has been at 30% of standard levels

• Coffee export data from Brazil showed an increase in exports for the entire 2024 year at 37 million bags, or +20% y/y. Robusta exports increased to 9.4 million bags, which was a 98% y/y increase. Due to such large exports, coffee stocks have been significantly depleted

• Volcafe lowers Arabica coffee production outlook for the 2025/2026 season to 34.3 million bags. This is a massive cut in assessment by 11 million bags compared to September

• Volcafe estimates that the global deficit will be 8.5 million bags in the 2025/2026 season, which will be a larger deficit than the 5.5 million bags from the previous season

• The consulting group Safras & Mercado indicates that Arabica production will fall by 15% y/y to 38.35 million bags. Overall coffee production in Brazil is expected to be 62.45 million bags, which would be a 5% y/y decrease

Exchange inventories have stopped growing but historically remain extremely low. Source: Bloomberg Finance LP, XTB

Coffee is still deviated by more than 2 standard deviations from the 1-year average and almost 3 deviations from the 5-year average. However, even from a historical perspective, coffee doesn't appear to be extremely overbought. Source: Bloomberg Finance LP, XTB

Coffee price breached today the highest levels since December 19. Source: xStation5