Commodity wrap - Oil, Gold, Copper, Coffee (27.10.2020)

Oil

• Oil price is pulling back as Libya ramps up production. It is expected that Libyan production will reach 1 million barrels per day within 3-4 weeks

• Gasoline stockpiles dropped to the 5-year average. Seasonal patterns hint at inventory builds until year's end

• Latest data showed decline in gasoline demand. Week ending Oct. 16 saw demand at 8.289 mbpd compared to 8.576 mbpd in the previous week and 8.896 mbpd two weeks earlier

• Rising support for Biden is a negative for oil. Firstly, the United States may try to reach a nuclear deal with Iran (lifting sanctions could mean return of production of 1-2 mpbd). Secondly, Biden plans to launch incentives for EVs and renewable energy

• Russia hints that current output cut agreement could be extended. In theory, OPEC+ output cuts should be reduced from 7.7 mpd to 5.7 mbpd starting from January 2021

Gasoline inventories are expected to rise in the coming weeks, which may negatively impact oil prices. Source: EIA

Betting markets favour Joe Biden by a huge margin. Policy plans of the Democratic candidate can have a negative impact on oil prices. Source: realclearpolitics.com

Gold

• In spite of weak US dollar, gold price remains stuck in consolidation range ahead of the US elections

• Options markets remain calm ahead of the US elections. 4 years ago reversal ratios were very high, hinting at a possibility of major price jump

• Investors do not seem to position themselves for major price jump this time

• ETFs halted gold purchases. Number of long and short positions is increasing

• Our expectations remain unchanged - declines near the election date and price rebound in December and January

Reversal rations do not hint at a possibility of a major price jump during the elections. However, the level is not extreme enough to look for a contrarian signal. It should be noted that ahead of 2016 elections ratios were very high. Source: Bloomberg

ETFs have halted gold purchases recently. Investment demand as well as demand from central banks is limited near year's end. This suggests that bigger gold price gains could happen near the turn of the year. Source: Bloomberg

Copper

• Copper price remains at relatively high levels after reach 7000 USD per tonne for the first time since mid-2018

• Result of the US elections is likely neutral for copper. However, industrial metal may swing on the back of USD moves. However, in theory, Biden's infrastructure plan should be positive for copper prices

• Copper inventories rebound but remain significantly below 5-year range

• Positioning data hints at commodity being strongly overvalued

• Price also hints at overvaluation as it is nearing 20% deviation above 50-week average

Copper inventories have rebounded recently but still remain below 5-year range for the given time period. Source: Bloomberg

Copper looks overvalued given high speculative positioning and significant price deviation from 50-week average. Source: Bloomberg

Coffee

• Coffee inventories increases slowed, what trigger a minor price rebound

• Speculative positioning continues to change. New lockdowns should favour Robust consumption over Arabica - potential continued increase in stockpiles

• Trump's victory is a potential bearish scenario for coffee - mostly due to possible continued USDBRL increases

Increases to coffee inventories slowed. Nevertheless, fundamentals hint that inventory builds are likely to be resumed. Source: Bloomberg

Investors reposition themselves on the coffee market, what may exert price pressure. Source: Bloomberg