Commodity Wrap - Oil, Natural Gas, Gold, Cocoa (07.03.2023)

Oil:

• Russia exports record amounts of diesel to Brazil (oil state)
• Russia has also started exporting diesel to Saudi Arabia (also an oil state)
• There may be a situation where these countries simply resell Russian products under 'their label'
• Goldman Sachs still believes that there will be more upward pressure in the second half of the year and expects $100/bbl on Brent in December
• China's oil imports in January-February were 10.4 million barrels per day, which was 1 million barrels per day lower than in November-December
• This shows that China is still mainly benefiting from previously built stocks.

Brent crude oil is retreating from around $86 per barrel at the 100 SMA average. The last time oil was permanently above this average was in July 2022, while there was a 2-day breakout in November. A close above this level this week could give a clear demand signal. On the other hand, today oil is retreating from this important resistance. Source: xStation5

Gas:

• The last few days have brought powerful movements in the gas market. It is worth noting that back in February we were close to $2.0/MMBTU and on Friday the level of $3.0/MMBTU was tested, which, ignoring the roll-off, brought us almost 50% from the local bottom
• The strong gains were linked to forecasts pointing to a much colder March, with cold air culminating in the middle of the month
• On the other hand, a strong downward gap emerged after the weekend, linked to news of strong gas production settling at 101-102 billion cubic feet per day
• In addition, investors are pointing to the approaching end of winter, which, with high production, could lead to an oversupply (at the same time, this could be a contrarian signal)
• The amount of gas coming into the Freeport terminal is growing very strongly and could soon approach maximum processing capacity of 2.0-2.0 bcf/d
• CFTC still having trouble publishing new data - latest data is from a month ago
• Data from a month ago showed a very strong increase in short positions - at the same time, we could see quite a rally over the last two weeks, which could be related to closing short positions (falling open interest)

Gas, after reaching $3.0, fell to the vicinity of $2.5. A drop below the 61.8 retracement of the recent recovery could plunge the further rebound on gas. Source: xStation5

Freeport is taking in more and more gas. However, due to its very high production, Freeport's impact on limiting the rise in stocks is essentially negligible. Source: Twitter @NatGasCollector

Forecasts for the middle of the month are improving slightly, although at the same time it is expected to be warmer across the territory. Source: Bloomberg

Gold:

• US bond yields retreated from around 4%, helping gold to test the vicinity of $1850 per ounce
• At the same time, however, the dollar remains strong ahead of Powell's speech (which could change by the time of publication) and weakened gold earlier this week
• Consumer demand has still not scored a strong rebound earlier this year. It is expected that El Nino, which is expected to cause quite a drought in India, could have quite an impact on demand for jewelry products.
• The low income of the population may affect lower purchases. On the other hand, El Nino may result in no further increases from the Central Bank of India, which is a positive factor for domestic demand.
• Nevertheless, the strong dollar remains a key factor in international markets
• ETFs continue to sell off gold - the current situation is starting to resemble the reduction in gold by ETFs that has taken place since late 2012 and early 2013. ETFs have now been reducing gold in vaults continuously since April 2022

Gold is very dollar-dependent, although it has recently managed to test the vicinity of $1850 per ounce with a fairly strong dollar and yields at 4%. Nevertheless, the key for gold will be the upcoming NFP data and CPI inflation, followed by the Fed decision in 2 weeks. If there are indications of a quicker end to hikes, gold could then move towards 1900. If the opposite is the case, we are in for another dip below 1800. Source: xStation5

ETFs are selling off gold, although not on the same scale as during last year. If ETFs change their stance, it will be a very strong demand signal. Source: gold.org

Cocoa:

• A clear technical pro-dips signal has emerged on cocoa
• In addition, we are seeing considerable divergence with the pound, which is not justifying the recent gains
• At the same time, the El Niño phenomenon may lead to a worsening of the crop outlook for this commodity in the next two seasons
• On the fundamental side, we have mixed data: in the short term, there are problems with cocoa supply to Ivorian ports; on the other hand, the outlook for production this year remains high. At the same time, Gepex - the association of the largest cocoa processors and exporters - shows a clear increase in demand
• Strong rainfall on the Coast means that harvest prospects in the so-called mid-season from April to October have improved

Cocoa price shows clear reversal signal. The pound remains in divergence. At the same time, seasonality offers chances for a local low next week. Source: xStation5