Commodity Wrap - Oil, Coffee, Corn, Gold

Oil

• Crude prices dropped significantly on November 29 on the back of a downbeat comments from Saudi Arabia and Russia

• Saudi Arabia said that it will not take burden of deeper output cuts

• Russia wants to consider extension to output cut agreement in April

• Iraq said that additional 400k bpd of cuts could be delivered

• In case additional output cuts are agreed to, their net effect may not be significant. Saudi Arabia cut output by more than it was expected to, while countries like Nigeria or Russia kept failing to comply with the agreement

• US oil inventories sit above the 5-year average and near seasonal peak

As one can see, a number of OPEC+ countries fails to comply with the output cut agreement. Moreover, there are countries that even boosted production, like for example Iraq. Source: Bloomberg, OilPrice.com

US oil stockpiles sit above the 5-year average, what limits further upside for crude prices. Source: Bloomberg

Coffee

• Coffee prices continue to rise. Local peaks from 2018 in play

• Positioning data shows resemblances to the situation from 2016

• Rally in 2016 lasted for almost a full year and saw prices rise by around 60%

• Significant declines in coffee inventories supports ongoing rally and encourages traders to close short positions

Rebound on the coffee market is supported by a significant decline in stockpiles. Source: Bloomberg

Significant decline in the number of open short positions. Story from 2016 could repeat. Source: Bloomberg

Coffee prices rallied around 60% in 2016. In case the ongoing upward impulse was to match the one from 2016 in size, price could rally another 25% from current levels. Source: xStation5

Corn

• Rebound during the years’ end in line with seasonal patterns

• 5-year average performance for December shows a gain of 2.7% while 10-year average points to a gain of 3.7%. Corn is the best performing agricultural commodity during the final month of the year

• Disastrous harvest season in the US. Weather conditions seem to be the reason

• Crop could be of lower quality due to ground frost

• Next USDA report may hint at lower levels of ending stocks for the season

Harvest in the US should have been finished a few weeks ago already. Less than 90% of total acreage was harvested by Novembers’ end. Source: Bloomberg

In spite of the terrible news on sowing and harvest, ending stocks are forecast to be relatively high. The next USDA report should see a revision to estimates and could exert some additional upward pressure. Source: Bloomberg

Gold

• In spite of USD weakening and declines on the stock exchanges, gold struggles for direction

• Speculative positioning and ETF holdings also did not see a major change recently

• Seasonal patterns for gold in December are mixed - 5-year average hints at a gain of 1.1% while 10-year average points to a 2.5% decline

• Central banks become increasingly significant player amid sluggishness in the jewelry demand

• Risk reversal indices have declined recently hinting that markets are not concerned about a major spike in gold prices

Net speculative positioning on gold as well as ETF holdings saw little change recently. Source: Bloomberg

Short-term risk reversal indices hint that markets do not expect a major spike in gold prices. Source: Bloomberg