Commodity Wrap - Oil, Gold, Cocoa, Sugar (23.02.2021)

12:31 PM February 23, 2021


  • US production is slowly getting back to normal levels. Nevertheless, inventories data is likely to be distorted this and next week

  • Goldman Sachs expects Brent price to reach $70 in Q2 2021 and $75 in Q3 2021 amid lower inventories and higher marginal cost of production in short-term

  • ANZ signals a low chance of shale boom in the near term due to lower fracking activity in the previous 3 years. Production is likely to remain below pre-pandemic highs

  • As much as 40% of the US oil production was offline at one point during recent arctic blast

  • Prices are likely to reach $70 per barrel due to the current market deficit. OPEC+ meeting scheduled for March 4 can be a key near-term factor

Brent prices reached $65 per barrel. Brent is less resilient to production stoppages in the United States. Nevertheless, WTI is trading around $3 below January 2020 highs while Brent is trading $5 below levels from the beginning of the previous year. Seasonal patterns hint at local low being reached in mid-March. Source: xStation5


  • Lagarde said that EcB is monitoring long-term bonds, triggering small decline in European bond yields

  • Yields around the world are picking up amid fears of returning inflation

  • US house prices increased around 15%. S&P/Case-Shiller index points to a 10% increase in US real estate prices. Real estate accounts for around US core inflation gauges so a pick-up in inflation looks likely

  • Gold has an inflation-hedging property in the long-term. Short-term moves are driven to a larger extent by the bond market

  • Our research concluded that 10-year US yields rising to 2% could trigger a 10% decline on the gold market

Continuation of the upward move in US yields may deepen declines on the gold market. Inflation is becoming a concern. On the other hand, central banks attempt to calm the situation. Potential decline in gold prices may be seen as an opportunity for long-term investors. Source: Macrobond, XTB

The last time 10-year US yields sat around 2% was in mid-2019. Taking a look at gold from a long-term perspective, we can see that such a pick-up now could push gold lower towards $1,515-1,630. A 61.8% retracement can be found near the $1,515 mark. Source: xStation5


  • Cocoa is one of the few commodity markets that failed to rally at the end of 2020 and at the beginning of 2021

  • Last week's candlestick took a form of a pin bar. Potential bullish engulfing this week

  • A lot of negative news for the cocoa market: big oversupply and demand struggles

  • Improved outlook for Western African crops following recent rainfall. Mid-season harvest expected to be solid

  • Ivory farmers struggle to find buyers for additional supply. Around 100 thousand tonnes were bought by domestic traders that do not have access to international markets. They are offering discounts of up to $300 compared to market price

  • Global inventories near 5-year lows for the given period. Potential fundamental signal

Weather has been good in Western Africa recently. Source: Bloomberg

Cocoa inventories are relatively low. Source: Bloomberg

Cocoa is trading at relatively low levels compared to the previous years. Demand continues to be limited by pandemic. In our opinion. There is limited room for further decline. Current weekly candlestick may paint a bullish engulfing. First target for buyers can be found at $2,620 per tonne. Source: xStation5


  • Sugar and coffee rally amid transportation issues in the South America

  • The biggest Brazilian exports of sugar take place in May. Current issues with shipping soybeans may extend into following months. Coffee, soybean and sugar are often shipped via same terminals

  • Brazilian sugar exports in January stood at the lowest level since 2014. Exports in February are expected to be at half the normal levels

  • Asian exporters of sugar are struggling to find empty containers for shipping, especially India

  • Shipping issues result from logistics, rather than availability of sugar in Brazil or India

  • On the other hand, recent dry weather on Brazilian plantations as well as expected rainfall in ports may delay shipments in April and May

Positioning on sugar starts to look similar to 2016/2017. Rebound in the number of short positions may herald a reversal. Source: Bloomberg

Sugar trades at the highest level since 2017. Price is being supported by logistic issues as well as high oil prices. Issues with transports may last until May. Seasonality signals that a local low may be reached at the beginning of May. Source: xStation5


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