Commodity Wrap - Oil, Natural Gas, Gold, Cocoa (08.11.2022)

Oil

• In spite of a relatively high oil prices compared to previous local lows, it may seem that market is not fully pricing in incoming drop in OPEC+ supply and introduction of embargo on Russian oil

• On the other hand, Russia increased its imports, primarily to India but also to China

• The latest imports data from China for October showed oil demand rebounded to 5-month highs even as Covid restrictions in the country remain in place

• Imports in October stood at 10.2 million barrels per day, up from 9.83m bpd in September 2022 and 8.94m bpd in October 2021

• Nevertheless, the latest rumors on keeping Covid restrictions in China in place have limited oil price gains

• Strategic oil stockpiles in the United States dropped below 400 million barrels. This means that those reserve would only cover around 20-22 days of US consumption

• Number of unfinished oil rigs in the United States dropped to the lowest level in history, meaning that capacity to boost production quickly is small

Potential double top pattern at OIL.WTI. Note that the ascending triangle pattern can also be spotted on the chart. Weaker USD is providing more and more support for oil prices. An upside breakout could pave the way for a test of $100 area later this year. Source: xStation5

Natural Gas

• Weather in the United States is forecasted to get much worse in the coming days with temperatures in almost all states falling significantly below averages for this time of the year. This is driving US natural gas prices higher

• On the other hand, the latest data showed another increase in US natural gas stockpiles of over 100 billion cubic feet

• Nevertheless, next week may see the first significant drop in supplies as the heating season starts. Weather forecasts for December also suggest that natural gas consumption may be above-average

• Meanwhile, forecasts for Europe remain optimistic, allowing European gas prices to remain in the €100-110/MWh range

• On the other hand, it is rumored that European gas prices may spike to €200 or €300 per MWh in mid-2023 should no adequate supply source be found for the next heating season

US natural gas stockpiles may start dropping within the next 2 weeks. It should be noted that stockpiles did not fill to the 5-year average this year and fill-up of inventory will be more difficult next year amid increase in exports to Europe. EIA

Forecasts point to a cold weather in the United States in the next dozen or so days. Source: NOAA

NATGAS fills the bullish price gap from the beginning of the week. Colder weather in the United States is expected to arrive by the end of this week but data on natural gas consumption will not be available until next week. Source: xStation5

Gold

• Gold price continues to recover after a triple bottom was painted in the $1,620 area

• Gold is supported by the weakening US dollar. On the other hand, US yields remain at elevated levels

• $1,730 area is marked with a neckline of the previous double bottom pattern. Neckline of the second double bottom pattern in the $1,670 area has already been breached

• Central banks purchased massive amounts of gold in the Q3 2022. Central banks purchased more gold in the three quarters of 2022 than in whole 2021

• Jewelry, technological and investment demand remains weak, however

• Investment demand for physical gold continues to increase, mostly because of China and India. On the other hand, ETFs are selling significant amounts of gold since the beginning of the year

Demand for gold from central banks was really strong in Q3 2022. Source: WGC

Current sale of gold by ETFs is similar to the situation from 2012-2013. Source: WGC

Gold price continues to rebound from a triple bottom. Source: xStation5

Cocoa

• GBP stability allows for a noticeable rebound in cocoa prices - cocoa price at London exchange jumps to a 2-year high while cocoa at New York exchange moves to a 5-month high

• Cocoa prices traded to the highest level since May amid ongoing harvest season in West Africa

• Nevertheless, cocoa remains significantly oversold by speculators

• Employees at export ports in Ivory Coast were on a strike in the past two weeks. Moreover, rainy water is also making transport of cocoa to ports difficult

• Rabobank lowers Ghana cocoa production forecast amid lack of available fertilizers

COCOA jumped to a 5-month highs. However, it should be noted that price may give back some gains once strikes in Ivory Coast end. Source: xStation5