Commodity Wrap - Oil, Natural Gas, Cocoa, Soybean (07.05.2024)

Oil

• Speculations arise regarding the extension of voluntary production cuts by OPEC+ countries for the second half of this year
• Saudi Arabia is raising export prices for June, indicating confidence in demand. However, some OPEC+ countries are struggling to adhere to the agreement, while production growth in non-OPEC+ countries may lead to a decline in the cartel's market share
• Meanwhile, we observe an increase in oil stocks in the US and weakness in the crack spread, which may suggest demand issues
• On the other hand, offshore stocks are sharply decreasing. Currently, stocks stand at 57.8 million barrels (as of May 3), a 14% decline from April 26 and the lowest level since February 2020
• The largest stocks are in the Asia-Pacific region, where stocks have fallen by 21% year-on-year to 22.41 million barrels. However, stocks are rising in the North Sea and on the US coast, suggesting lower demand in the most developed economies
• Long positions in oil continue to grow, but we also observe a rebound in short positions, leading to a decrease in net positions, coinciding with the recent correction in the oil market
• The EIA indicates a demand growth of only 1.0 million barrels per day (bpd) this year. The IEA already sees a demand growth of 1.2 million bpd, while OPEC points to 2.3 million bpd

Oil stockpiles in the US have recently risen, but seasonality suggests a decline in the coming weeks due to increasing demand during the summer season. Source: Bloomberg Finance LP, XTB

WTI crude oil has broken through the 200-period moving average and is approaching the important zone around the $77-78 per barrel level. Source: xStation5

Natural Gas (NATGAS)

• Gas production in the US has returned above 100 billion cubic feet per day (bcfd), but we continue to observe a further decline in drilling rigs, which may suggest challenges in increasing production further to last year's average levels
• Gas demand remains heavily constrained, consistent with seasonality. However, high temperatures may cause the cooling season to start earlier than usual
• Export from the USA has remained limited in recent weeks.Exports averaged slightly below 12 bcfd in April
• We see a decrease in long positions and consolidation of short positions on US natural gas market
• Gas marks its first positive month since October. However, as shown by the 2019/2020 transition, the first positive month does not necessarily indicate continued growth

Gas marks its first positive month since October. Source: Bloomberg Finance LP.

Seasonality suggests that gas growth may still lie ahead. However, it's worth remembering that some of the growth in seasonality stems from the nature of the futures curve itself. Source: Bloomberg Finance LP, XTB.

Gas production has rebounded to levels above 100 bcfd, but with such a sharp decline in drilling rigs, it may be challenging for production to rise to last year's average levels. Source: Bloomberg Finance LP, XTB.

NATGAS has reached the vicinity of a significant resistance level at around 2.225, which is associated with the 200.0% retracement of the last downward wave in gas from April and the local low from December 2023. Source: xStation5

Cocoa

• We observe further reduction in long and short positions in the market. Low liquidity means that price movements in the near future could be very significant
• Ecuador plans to increase cocoa cultivation area by 20% and aims to become the second-largest producer in the coming years, surpassing Ghana in this position
• Production in Ghana has declined to 580,000 tons in the 23/24 season, marking a 22-year low. Production in Ecuador reached 430,000 tons
• The largest producer remains Ivory Coast. Local data shows that from October 1 to April 28, deliveries to ports decreased by 30%, while production itself is expected to be 21.5% lower
• Citi pointed recently to a price around $12,500 in a 12-month perspective. One fund suggests a price of $20,000 by the end of this year
• On the other hand, low liquidity and delivery uncertainties make the futures market currently unpopular
• Societe Generale indicates that cocoa accounts for a significant portion of hedge fund profits this year.

Funds continue to reduce their cocoa positions. Lower liquidity leads to significantly increased market volatility. Source: Bloomberg Finance LP, XTB.

The cocoa price has fallen to around $7,000, coinciding with the 61.8% retracement of the entire upward wave from this year. However, only a drop below $5,750 (61.8% retracement of the entire upward wave started in 2022) could lead to the negation of the entire bull market. Source: xStation5

Soybean

• The strike of workers in the processing sector in Argentina, which paralyzed the export of soybean meal and oil, has ended. However, on Thursday, there were reports of another possible strike
• Harvest season is currently underway in Argentina and Brazil. Recent heavy rains have caused flooding and may lead to lower expected harvests
• Extreme short positioning is observed in soy, with net short positions at their highest in years
• Chinese buyers still prefer Argentine and Brazilian agricultural commodities over American ones, which is related to the currency situation
• This situation may result in low US benchmarks even with increasing global supply constraints due to low foreign demand

There has been a reduction in short positions in soy recently, which were among the highest in history. This gives us a contrarian signal indicating a possible rebound in the near future. However, historically, prices have not yet reached extremely low levels. Source: Bloomberg Finance LP, XTB.

Soybeans are experiencing a strong rebound. Problems related to supply in South America are emerging. Positioning provides a contrarian signal. If the US dollar starts to weaken, it will be the final piece indicating a possible stronger rebound. Source: xStation5