Commodity Wrap - Oil, Natural Gas, Gold, Cocoa (06.09.2022)

Oil

• OPEC+ decided on a marginal output cut of 100k bpd for October

• A decision on 100k bpd increase was made in the previous month therefore net effect is zero

• Moreover, OPEC+ still struggles to meet its output goals

• Decision on such a small output cut may be seen as breaking but it was not enough to trigger bigger price moves

• Russia prepares for complete halt of imports to Europe, what may result in price rally by the end of the year

• Price cap on Russian oil will become effective on December 5, 2022. Specific price level will be set slightly above Russian production costs. Countries that do not comply with price cap will be barred from using G7's insurance services and tanker fleet

• On the other hand, countries like China or India will not have to comply with a price cap

• Current breakeven prices for Arab countries sit at around $80 per barrel, suggesting that it is unlikely for prices to drop below this level

Oil rebounded on the news of OPEC+ output cut but the scale of the move was not large. One cannot rule out a possibility of retesting the upward trendline. Source: xStation5

Natural Gas

• Gazprom does not plan to resume gas flows via Nord Stream pipeline until Siemens Energy repairs faulty equipment or provides a new one

• Gazprom has 3 other ways to send gas to Europe but it would require paying for transit. However, selling at a spot prices would still be profitable given current gas prices

• It should be noted that Gazprom made decision to stop selling gas at spot price last month, what lead to prices breaking above €100/MWh back then

• European natural gas inventories are 80% full

• Assuming a complete halt to gas flows from Russia to Europe and no increase in other imports, EU may run out of gas by the end of March. On the other hand, EU is going to great lengths to diversify imports and lower consumption

• US gas price dropped below $9/MMBtu, most likely due to lower price pressure in Europe, where prices dropped to around €240/MWh

If imports from Russia do not resume and no other actions are taken, EU will run out of gas by the end of March 2023. Source: Bloomberg, XTB

US natural gas stockpiles increased above the 5-year average recently. Changes in US stockpiles are in-line with seasonal patterns. Source: Bloomberg

US natural gas prices (NATGAS) dropped below $9 per MMBtu. Key support zone can be found in the $8.2-8.4/MWh area. Source: xStation5

Gold

• Gold holds above a support in the $1,700 per ounce area. However, continued pick-up in yields and strengthening of US dollar may lead to a break below

• Speculators decrease number of open long positions and added to short positions

• ETFs continue to sell gold holdings

• Indian gold imports in August has been weakish due to elevated price volatility and weakening of INR against USD

• Further weakness in emerging markets may have a negative impact on a looming key purchase season

• Autumn is a period of increased demand for precious metals in India. However, USD strength may dent demand this year

Speculators continue to sell gold. Source: Bloomberg

Gold continues to trade at depressed levels due to USD strength. Key resistance can be found in the $1,728 area, near the 61.8% retracement of the latest upward impulse. Source: xStation5

Cocoa

• Strengthening of the GBP may support a price rebound on cocoa market

• Harvest season begin in October therefore prices may remain volatile

• Crop season is drawing to a close. Weather conditions have improved recently in West Africa but farmers complain about shortage of fertilizers, what may ultimately lead to a lower harvest

• Cocoa breaks above the upper limit of the downward channel

Net speculative positioning on cocoa starts to rebound but the number of open short positions remains extremely high compared to recent years. Source: Bloomberg

Significant divergence emerged between cocoa and GBP but uncertainty about upcoming harvest led to a noticeable price rebound. If GBP regains its shine, cocoa price may return towards $2,600 per tonne by the end of the year. Source: xStation5