Commodity Wrap - Oil, Copper, Coffee, Wheat (27.04.2021)

11:21 AM April 27, 2021

Oil

  • OPEC+ technical committee boosted demand forecast for 2021

  • Demand recovery this year is expected to reach 6 million barrels per day, up from previous forecast of 5.6 million bpd

  • According to OPEC+, additional global stockpiles resulting from last year's oversupply will be reduced by the end of Q2 2021

  • Average decline in stockpiles is expected to accelerate to 1.2m bpd, up from previous forecast of 0.8m bpd

  • Coronavirus pandemic remains a key risk for demand and price stabilization, especially amid deteriorating situation in India, Japan or Brazil

  • OPEC+ delegates will meet on Wednesday and will decide whether to make changes to current policy increasing output by 2 million barrels per day over the coming 3 months or not

  • Nuclear talks between Iran and the United States are expected to resume in Vienna

US oil stockpiles remain slightly below 500 million barrels. OPEC+ is using average for 2015-2019 as a reference point. In order to reduce pandemic-related oversupply, stockpiles would need to drop to 464 million barrels by the end of June. This translates into stockpiles dropping by 3 million barrels per week on average. Source: Bloomberg

Copper

  • Recent climate summit attended by US President Biden has assured investors that demand for copper will continue to rise in the coming years, amid large investments in green energy and electric vehicles

  • Copper trades just slightly below record highs. Recent price performance suggests that copper still be within the first phase of the uptrend

  • On the other hand, data from China show limited optimism over the short-term. Relatively high copper stockpiles in the country and declining price premium signal that China has enough copper to carry out planned investments

  • There is a growing concern that lack of new expansion projects in recent years may lead to a deficit on the copper market once "green" investments start to be carried out

Copper stockpiles have increased noticeably in the previous 2 months. China was the biggest driver. Chinese imports will be a key factor in assessing short-term outlook for copper prices. Source: Bloomberg

Should the history repeat itself, copper could in theory rally towards $12,000 per tonne over the 24-26 month period starting with last years' local low. This would hint at the $12,000 mark being reached near mid-2022. However, back in 2008-2011 period, copper price gains were supported by weak USD. Currently, the US dollar remains expansive in historical terms. Source: xStation5

Coffee

  • Concerns over weather in Brazil drive coffee and sugar price gains. On the other hand, weather conditions remain good in Central America and Vietnam

  • 2019-2020 pullback has been similar to the one from 2005. Breaking above 145 cents per pound may signal trend reversal. This level is marked with 61.8% retracement of the latest large downward impulse

  • In spite of the poor weather outlook in Brazil, this year's crop is still expected to be gargantuan. This may limit potential for future price gains

  • Coffee dealers expect crops to be slightly lower this year while demand from US and Europe is expected to rise amid reopening of bars and restaurants

  • Brazilian real remain weak, what incentivize Brazilian producers to boost exports

Coffee stockpiles have increased significantly over the past few months and the trend is expected to continue. Taking a look at history, we can see that there were no such periods when such a steep increase in stockpiles was accompanied with a strong upward price trend. Nevertheless, increase in demand may help maintain an uptrend on the coffee market. Source: Bloomberg

Coffee price tests key resistance. Should weekly candlestick close above the 61.8% retracement of the latest large downward impulse, bulls may be encouraged to push the price towards 78.6% retracement. Key support can be found in the 130 cents area. Source: xStation5

Wheat

  • Winter wheat is growing at below-average rate in the United States this year. 17% of planted crop has germinated (data for April 25), compared to 20% in 2020 and 23% for the 5-year average

  • Quality of winter wheat is also looking worse than in previous years. Wheat in excellent and good quality makes up 49% of crop, compared to 53% in 2020 and 54% for the 5-year average

  • China plans to increase wheat and rice imports due to high corn prices

  • The latest exports data from the United States showed increase, what may lead to drainage of the US stockpiles

  • There is a lot of uncertainty relating to this year's harvest - dry weather in Europe threaten wheat crop while dry weather in Brazil and Argentina threaten corn and soybean crop

Wheat price jumped above a recent trading range. A point to note is that positioning is not extremely high. Price sits at the highest level since February 2013. 820 cents per bushel can be seen as the next potential resistance level to watch (78.6% retracement). Source: xStation5

Crop quality in the United States has been deteriorating since the beginning of this season. On the other hand, quality remains relatively high in historical terms. In any case, production in the United States is expected to be limited and recent weather conditions seem to support higher prices. Source: Bloomberg

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