Commodity Wrap - Natural Gas, Oil, Cocoa, Corn (27.02.2024)

Natural Gas

• US natural gas prices (NATGAS) struggle to find direction after futures rollover
• NATGAS jumped to a 2-week high near $1.865 per MMBTu following rollover, but struggled to maintain those gains and began to trade sideways with $1.70 serving as a floor
• Price jumped at the beginning of this week as new weather forecasts hinted at a receding heat wave in the mainland US
• Relatively low demand as well as ample inventories continue to push European gas prices lower, with TTF dropping below 2023 lows at the end of the previous week
• European natural gas inventories are around 64% full, while 5-year average for the current period is around 48%
• Bloomberg estimates just a 2% YoY increase in summer 2024 natural gas supply compared to summer 2023, driven by supply increases in Russia and the United States

Weather forecasts issued after the weekend suggest that heat wave in the US mainland is receding eastward and is following by a cold wave. Source: Bloomberg Finance LP

European natural gas inventories are around 64% full, while 5-year average for the current period is around 48%. Note that inventories in Europe haven't been so full at this point of the year in any of the previous 5 years. Source: Bloomberg Finance LP

Bloomberg estimates just a 2% growth in LNG supply on summer-over-summer basis, driven by production increases in Russia and the United States. However, growth in supply from summer 2024 to summer 2025 is seen at almost 7% due to new production projects going live. Source: Bloomberg Finance LP

US natural gas prices (NATGAS) have been trading mostly sideways following recent contract rollover. Price is approaching the $1.70 per MMBTu area that has served as a floor over the past week. Source: xStation5

Oil

• Oil prices struggle to break out of a sideways move that has been present on the market over the past 2-3 weeks
• US oil exports are estimated to have risen to 4.8 million barrels per day in February 2024, up almost 1 million barrels from 3.9 million bpd reported for January 2024. This would mark a new record high for US exports
• The upcoming US refinery-maintenance season will be one of the heaviest ever after work has been deferred over the past four years due to pandemic as well as record high margins, and it may contribute to drop in inventories ahead of US driving season
• China has been buying oil cargoes at a steady rate compared to previous months, in spite of Chinese refinery maintenance season looming large. There is a chatter in the markets that Chinese state refineries may increase run rates after strong Lunar New Year demand
• The upcoming temporary ban on gasoline exports from Russia, set to go live on March 1, is likely to have limited impact on global markets, as around 85% of gasoline refined in Russia is used on domestic market

Brent (OIL) pulls back after making another failed attempt at breaking above a short-term, downward trendline. Price is currently testing 50-hour moving average (green line), which is a final hurdle ahead of the $81 support zone, marked with 38.2% retracement. A break below this area may hint that another test of the $80 area is looming. Source: xStation5

Cocoa

• Rally on the cocoa market is showing no signs of slowing down
• COCOA jumped around 3% on Monday and traded above $6,500 per tonne
• Cocoa is trading around 35% higher month-to-date as well as around 55% higher year-to-date
• Rally is driven by tightening of cocoa supplies
• Cocoa arrivals at Ivory Coast ports since the beginning of this season (October 1, 2023) totaled 1.16 million tonnes, much below 1.7 million tons a year ago
• Nigeria's cocoa bean exports for January came in at 36,941 tonnes, down from 43,405 tonnes a year ago
• The latest COT report suggested that the ongoing rally has been fuelled mostly by short covering rather than opening of new long positions by money managers
• Seasonal pattern suggest that we may be approaching a local peak. A small correction cannot be ruled out later on, until around March 10, 2024, after which 2-3 months of sideways trading should commence

2 out of 4 biggest weekly cocoa price jumps in the past 25 years occurred in February 2024! Source: Bloomberg Finance LP, XTB

COCOA experienced very strong gains so far this year, allowing the price to break above $6,500 per tonne for the first time in history. However, seasonality suggests that we may be at local peak, which will be followed by a small drop and a period of sideways trading. Source: xStation5

Corn

• Corn prices dropped to the lowest level since December 2020
• US Department of Agriculture said that net income of US farmers dropped 16% in 2023 and estimates that it will drop further 26% in 2024 amid slump in grain prices. This would mark the biggest plunge in profits since 2006
• According to Safras & Mercado report, Brazil summer corn harvest is 35.1% completed as of February 23, 2024. This is higher than 25% reported a year ago and above 5-year average for the period (31.7%)
• Corn exports inspections at US ports for the week ending February 22, 2024 increased 18% compared to a previous week and were 91% higher than a year ago. Corn export inspections have been 35.5% YoY higher in year-to-date period
• Traders continue to trim long positions and boost short positions. Number of long positions was the lowest in three weeks while number of short positions was the highest in almost five years. Net positioning on corn dropped to the lowest level since at least June 2006
• Seasonal patterns show a possibility of price gain until the beginning of June, when prices often drop due to the beginning of harvest season. However, seasonality also suggested that price should have increased between August 2023 and now, and it was clearly not the case

CORN dropped to the lowest level since December 2020. Price is currently testing the 415.00 support zone, that acted as the upper limit of a 2014-2020 trading range. A break below this zone could boost risk of a further decline, with 350 area being the next major support to watch. Source: xStation5