Commodity Wrap - Oil, Gold, Coffee, Emissions

Oil

• Oil price trade sideways near $25 (WTI) and $30 (Brent)

• On one hand, there is hope that demand is recovering. On the other, second wave of infections could cause another collapse in demand

• Car traffic data shows that situation in Germany and the United States got back to normal

• Goldman Sachs sees possible deficit on the oil market in June - such a situation would require full OPEC+ cuts and additional output reductions from G20 countries

• Decline in the US production is limited so far. However, big drop in the number of active rigs hints that it is likely to keep declining

Bottom in terms of demand is probably already behind us. Rystad Energy signals that demand will be lower by around 15 million barrels in June compared to pre-pandemic levels. Source: Rystad Energy

Demand is expected to decline by 13 million barrels per day in Q2 2020. The biggest decline is seen in the United States (around 5 mbpd) and in Europe (around 4 mbpd). Source: Rystad Energy

US oil production declined by around 1 mbpd from peak. Output may declined by another million by mid-year. Source: Bloomberg, XTB Research

Gold

• Gold trades sideways near $1,700 handle. Similar consolidation can be spotted on the US debt market

• Gold price is support by prospect of negative interest rates in the United States

• Strong rejection of sub-zero rate idea could trigger a moderate correction

• Donald Trump pressures Fed to cut rates below zero

• ETF continue to show strong demand for physical gold. Number of open long speculative positions continues to decline

ETFs continue to purchase big amounts of physical gold. Source: Bloomberg

Gold trades sideways near $1,700 handle. Similar situation can be spotted on TNOTE. TNOTE could drop once the idea of negative interest rates in the US is rejected. Source: xStation5

Coffee

• Coffee stockpiles continue to decline amid very low prices

• Vietnam's coffee exports drop, Brazil's exports (Robusta) increase

• Brazil's coffee exports are endangered due to Covid-19 in South America's largest ports. In case coronavirus continues to spread in Brazil, not only exports but also production could be impacted

• On the other hand, speculative positioning hints at coffee being strongly overbought. In theory, it could hint at continuation of decline

• We expect moderate price pressures in near-term and price rebound in the second half of the year (possibly due to supply issues)

Coffee stockpiles continue to fall, what hints at potential supply issues in the future. Source: Bloomberg

Speculative positioning hints at coffee being strongly overbought. In theory, it could hint at continuation of decline (contrarian signal). Source: Bloomberg

CO2 Emission permits (EMISS)

• Significant drop in demand for CO2 emission contracts

• UK sold emission permits for €18.30 per tonne, leading to price pressures on the market

• Flat futures curve for the coming months

• In case demand for electricity continues to fall in Germany, price pressures may return

Should German electricity rates continue to fall, downward pressures on emission prices may increase. Source: Bloomberg

Key demand zone for EMISS can be found between €14 and €16 per tonne. Source: xStation5