Commodity Wrap: Oil, Gold, Soybean, Coffee

Oil:

• Middle East conflict is the main driver of the crude price moves now

• United States impose new sanctions on Iran. Iran claims that the move closed the door for negotiations

• 20% of total global oil supply and around 40% of oil subject to trade flows through the Strait of Hormuz

• Asian countries are the primary recipients of oil from the Persian Gulf

• Blockage of the Strait could significantly disrupt oil supply chain

• US inventories stopped rising what may provide a support for prices

• OPEC+ group will meet on Monday and Tuesday next week. The output cut agreement is likely to be extended but Russia may try to win concessions in order to offset lost Iranian supply

• Trump-Xi meeting is likely to boost crude prices or, in case there is no breakthrough, be at least neutral for prices. Announcement of new tariffs does not look as probable option

US crude stockpiles are close to the highest levels in 5 years. Source: Bloomberg, XTB Research

Gold:

• US-Iran conflict pushes gold price to multi-year highs

• Dovishness of the Federal Reserve helps precious metals as well

• In theory, start of the rate cut cycle in the US may further support ongoing rally

• Back in 2015 when rate hikes were postponed, gold rallied $240. In case the ongoing move is to match the one from 2015, the upward move could extend by $70

• Daily close below $1430 handle and an upbeat result of Trump-Xi meeting could trigger a correction

Gains on the gold market are accompanied by the significant rebound in net speculative positioning and ETF holdings. ETFs currently hold the biggest amount of gold since 2013. Source: Bloomberg

Technical situation on the GOLD chart still seems to support bulls. Trump-Xi meeting should be closely watched by traders as an upbeat result of talks may trigger correction on the gold market. Source: xStation5

Soybean:

• US soybean plantings keep progressing, season nears its end

• Disastrous reports on conditions of soy and corn yields hint at weaker crop this season

• Contrarian, overbought signal for soybean due to high net speculative positioning

• Smaller Chinese imports hint at problems with demand, what limits upside for soybean prices

85% of soy has been already planted. However, conditions for soybean are the weakest since at least a few seasons. Source: Bloomberg

Net speculative positioning for soybean moves to the vicinity of highs from the turn of 2018 and 2019. However, there is still a long way until extreme levels from early-2018 or 2016 are reached. Source: Bloomberg

Chinese soybean imports are limited. Significant decline compared to 2016-2018 period. Share of Brazilian soybean increase. Source: Bloomberg

Coffee:

• Coffee prices test important resistance zone in the vicinity of 105 cents

• Coffee price is being supported by the news that the largest Brazilian and Columbian producers started to cooperate

• Arabica prices enjoy bigger gains than Robusta

• Recent strengthening of the Brazilian real supports rally on the coffee market

Arabica prices raise quicker than Robusta prices. Such a situation is due to the market factors rather than fundamental ones. Source: Bloomberg

In spite of coffee’s fundamentals not improving, the upward momentum looks promising. The US dollar should remain under pressure what may further boost BRL and, in turn, coffee prices. A break above the 50% Fibo could trigger a rally towards the 112 cents handle (61.8% Fibo level of the latest major downward impulse). Source: xStation5