Commodity Wrap - Oil, Gold, Coffee, Natural Gas (19.07.2022)

Oil

• Biden's visit to Saudi Arabia did not result in any announcement of increase in Saudi oil production

• On the other hand, the United States expects production to increase. Saudi Arabia says that its output levels should increase in the coming years

• According to oil market journalists, Saudi Arabia is to propose a measure that would compensate other OPEC+ countries for increase in Saudi oil production

• Saudi Arabia claims that market is not seeing a shortage of oil but a shortage of refining capacity. Similar situation occurred in 2007-2008, that eventually elevated oil price to levels that results in demand destruction

• Upcoming DOE report will be key for assessing fuel demand in the United States. Latest report showed that the amount of fuel supplied to the market dropped significantly. However, some say it was simply meant to offset increased supply ahead of July 4 holiday

• It looks like fighting and social unrest in Libya may have come to an end. In theory, oil production in the country return to around 1.2 million barrels per day

• Iran signed a Memorandum of Understanding with Russian Gazprom. MoU paves way for cooperation in energy sector between Russia and Iran

Amount of oil derivatives supplied to the US market dropped to the lowest level of the year. Lack of rebound in tomorrow's DOE report may hint that demand has slowed. Source: Bloomberg

Oil recovers from the area marked with 200-session moving average. Moreover, oil looks extremely oversold as far as speculative positioning is concerned. A potential break above the upper limit of the downward channel may hint at a trend reversal. Recovery in EURUSD is also providing support for oil prices. Source: xStation5

Gold

• A very rare situation on the gold market - asset managers (not all speculators!) are negatively positioned on the gold futures market

• Even in 2013-2014, when gold experienced steep price drops, such a situation did not take place

• Such a development may hint that gold price may be bottoming out

• Weaker US dollar may be a chance for gold. USD is weakening currently as market pares bets of a 100 basis point rate hike later this month

Positioning of asset managers on the gold futures market is negative. Source: Bloomberg

Coffee:

• Coffee stockpiles continue to decline and reached lowest level since  1999

• The potential weakness of the dollar in the near future should provide support for the real and coffee prices

• La Nina continues to threaten harvests in Brazil and Colombia, which could lead to a significant decline of inventories. If the losses caused by the bad weather will turn out to be significant then current price levels may seem attractive for investors

• On the other hand, coffee long positions have been reduced from extreme levels in recent months due to uncertainty regarding potential recession.

Coffee stockpiles  are at extremely low levels. If the coffee harvest turns out to be poor, then there may be a shortage of raw material to supply to the stock exchanges, which can quickly push prices up. A similar situation took place in the previous year on the aluminum or copper market. Source: Bloomberg

COFFEE -prices erased some losses from this month, but the prospects of the current consolidation still indicate the possibility of deepening the downward movement. The positioning is no longer extremely high, but new buyers are nowhere to be seen. Source: xStation5

Natural gas (NATGAS)

• Recent US inventory data indicates that the reduction in exports will most likely not lead to inventory rebuilding to the 5-year average

• Gazprom points to force majeure as the reason for the reduction of supplies to some European countries, suggesting that it may not fulfill its long-term contracts in the near future

• All this indicates that prices in Europe could potentially rise above EUR 200 / MWh, simultaneously increasing the pressure on greater exports from the US and a reduction in domestic supply. Currently, prices are about 6-7 times lower in the US than in Europe. Prices in Europe are around $ 10 / MMBtu higher than for deliveries to Asia

• Theoretically, Gazprom should announce on Thursday whether it will resume transfer to Germany

Temperatures in the Mid-Southern states remain excessively high, which will result in increased gas consumption. Source: weather.gov