Commodity Wrap - Oil, Gold, Coffee, Cocoa (14.06.2022)

Oil

• Oil prices remain at elevated levels in spite of news of renewed wave of pandemic restrictions in China

• Risk of global slowdown does not seem to impact oil prices yet

• Beginning of summer season suggests that even amid current high prices, short-term demand will remain strong

• Joe Biden will go on a trip to Saudi Arabia in mid-July in an attempt to convince Saudis to pump more oil

• Media say that talks on nuclear agreement with Iran may resume intensive phase

• United States allow European companies to purchase Venezuelan oil with risk of sanctions

• Futures curve remains unchanged compared to the previous week and still points to a very tight market

Spread between August and September Brent price continues to widen but has not reached levels from March yet. Source: Bloomberg

Inflation expectations in Europe and the United States rebounded but are not as extremely high as 3 months ago. Source: Bloomberg

Speculative positioning on the oil market is having less and less impact on prices but it should be noted that the number of short positions is at extremely low levels. Such levels were seen only a few times in the previous 10 years - near 2014 peak, 2018 peak, turn of 2019 and 2020 and now. Source: Bloomberg

Gold

• Gold pulled back amid rising expectations that Fed will deliver a 75 basis point rate hike tomorrow

• Overall, gold prices remains stable above $1,800 per ounce

• Net speculative positioning dropped to extremely low levels, investors are mostly closing long positions

• ETFs are selling gold but at a limited pace

• On the other hand, some expect Fed to hike rates to 4% by the mid-2023, what would boost long-term yields and be a negative for gold

Gold remains stable in spite of a big jump in yields. If the Fed delivers a 75 basis point rate hike tomorrow and signals need for more big hikes, a repeat of the 2013-2014 scenario cannot be ruled out. On the other hand, such an extreme scenario may be already priced-in to some degree. Source: xStation5

Copper-to-gold price ratio remains in consolidation and suggests that yields should stop rising. However, if interest rates are about to increase to 4%, yield may continue to rise for some time. Source: Bloomberg

Coffee

• Weakening of Brazilian real, mostly due to USD strengthening, triggers a pullback on coffee market

• On the other hand, speculative positioning on coffee starts to rebound. Number of long positions jumped 20% since May low and is 5 times higher than number of short positions

• Coffee stockpiles reapproached multi-year lows

• Weather conditions remain mixed. Moderate rainfall does not improve production outlook in a significant manner

• USDA maintains forecast of a drop in global stockpiles to 30 million bags in 2022 season, what would be the lowest level since 2013

Weaker BRL may support Brazilian exports. Of course, this may additionally drag stockpiles. Coffee prices defended support marked with a lower limit of the upward channel. A potential break below would pave the way towards 210 and 200 cents per pound support areas. Source: xStation5

Cocoa

• The collapse of the British pound causes cocoa prices to drop in New York due to an increasingly cheaper counterpart on the London Stock Exchange

• Covid problems in China, rising consumer prices in the world, still limited number of air travel means that the demand for chocolate products may be mixed this year

• On the other hand, market experts point to negative weather, diseases, transport problems or too expensive and unavailable fertilizers, which may worsen production prospects in the next main season. Previously, however, the prospects were very high

• Demand data from the US shows that from the beginning of the year to May 15, demand in the US fell by 6.3% y / y, with chocolate prices rising by 11% y / y

• Cocoa stocks tracked by ICE are on the rise. Stocks reached 5.8 million bags - the highest level from the middle of the previous year, which was the highest level in history

• Significant increase in exports from Nigeria, maintaining exports from Côte d'Ivoire, expectations of a large harvest in Cameroon

• Cocoa processing in the US in Q1 was lower by 2.8% y / y, while in Europe it increased by 4.4% y / y, which was the largest increase in the decade

• The ICO still expects a slight deficit this year compared to the surplus in the 2020/2021 season

The British pound may have a huge impact on cocoa in the near future, as it was in 2016 when the price fell below $ 2,000 per tonne. Source: xStation5