Commodity wrap - Oil, gold, coffee, copper (09/22/20)

• With the fall in prices on the stock market and the strengthening of the US dollar, oil returns to declines
• Inventories have been declining recently, but seasonality indicates that we should expect a rebound in the near future
• Libya remains the "black horse" of the oil market. Production at the level of 80 thousand barrels per day, but OPEC itself indicated that it would monitor the situation related to the rebound in production in this country
• Seasonality of Brent crude oil indicates possible further declines

According to seasonality, inventories should start to rebound in the near future. Source: Bloomberg

Production in Libya is very low, but the ceasefire shows potential for a sizable rebound, which in turn poses a threat to price increases. Source: Bloomberg

The appreciating dollar is not a very good sign for oil. Additionally, the seasonality points that declines will last until the end of November. Source: xStation5

Gold:

• Recent declines are determined by the strengthening of the US dollar
• Positioning on gold is not reduced as in February and March. ETFs are still buying gold
• The history of the recent crisis shows that corrections took place and the current declines  are not that significant. In the longer term, there is a chance for further increases
• Technically, we are dealing with a breakout from the triangle formation. However, is there any chance for stronger declines as we saw in March?

History shows that corrections during the bull rally took place and even the current pullback is not that significant. Source: Bloomberg, XTB

The positioning and behavior of the ETFs indicate that we should not be concerned that a similar situation will occur as in March. On the other hand, a lot may depend on the behavior of the US dollar. Source: Bloomberg

Gold is trading around the level of $ 1,900 an ounce. Recently, the price broke out from the triangle pattern, which ranges around $ 1,810 per ounce. The next support is located around the bottom from 12th of August. On the other hand, the range of the March correction indicates that the potential declines may reach even the level of $ 1,700 per ounce. Of course, bigger declines would require a significant strengthening of the US dollar. Source: xStation5

Coffee:

• The positioning on coffee remains very strong, we may be even dealing with a potential overbought of the market. On the other hand, despite the recent price correction, the speculators' attitude has not changed, which may be related to the behavior of inventories levels
• Inventories on stock exchanges are still decreasing, although recently there has been a noticeable drop in momentum. There is still no inflow of coffee inventories from Brazil. Meanwhile, according to Bloomberg, warehouse capacity in Brazil has never reached such high levels.
• Investors are again concerned about the decline in demand due to possible restrictions in Europe

Positioning is still very bullish in the coffee market, even despite the signals of a large supply coming from Brazil. Source: Bloomberg\

Inventory levels continue to decline. Certified, ready-to-deliver inventories are coming primarily from Central America. On the other hand, in Brazil, warehouses are almost full. However this coffee is perceived as inferior in quality and is rarely accepted as contract deliveries on the New York Stock Exchange. Source: Bloomberg

Copper:

• Prices remain very high despite the pullback seen in many other markets
• Bloomberg points out that the demand assessment index in China shows further gains in the second half of the year, but the three-month pace of growth in annual terms will slow down to 0-5% y / y
• Bloomberg is concerned that due to high prices, the process of "storing" the metal in China will end. On the other hand, limiting the availability of "scrap" in China causes still high import demand for this metal

The demand index for copper is expected to slow down in the coming months, which may also stop the upward trend. Source: Bloomberg

The global sale-off does not seem to have an impact on copper prices. Interestingly, the sale-off on other industrial metals is also limited. The key support for copper is located around the level of $ 6,500 per ton. Source: xStation5