Commodity Wrap - Oil, Natural Gas, Wheat, Coffee (19.04.2022)

Oil:

• Weak import data from China and India in recent weeks

• The largest oil field in Libya, "Sharara", was closed due to political issues

• China experienced massive drops in oil processing in refineries. The capacity utilized in private refineries in the Shandong area has dropped to around 50%. This is the power level that was last seen in 2016 (excluding the pandemic)

• Even in November, the refineries were operating at 70% of the available capacity

• These calculations, however, ignore state-owned refineries, which also have enormous processing capacities. Nevertheless, private refineries show real fuel demand.

• The price of crude oil remains high, which shows that the market is still much more concerned about a decline in supply from Russia than supply problems from China and the release of reserves from the US and IEA countries

• In the longer term, however, Chinese demand issues may be of key importance, so the price outlook for the autumn may lead to a price pullback

• JP Morgan points out that if EU immediately ban Russian oil, prices will rise to $ 185 per barrel

• At USD 165 per barrel, demand should be destroyed globally, which will cover the losses of Russian exports. Developed countries, however, can withstand price increases in the range of $ 200-220 per barrel.

The use of private refineries in the Chinese Shandong area has dropped to just 50%, which shows possible demand problems in China due to the pandemic. On the other hand, production in the Shanghai area, the country's largest industrial center, is returning to normal. Source: Bloomberg

Natural Gas:

• Russia emphasizes that there is still time to pay in rubles for gas

• The market is afraid that Russia will halt gas transfers to European Union countries if they do not decide to pay for gas in rubles

• Very strong increases in gas prices on the American market, the price of gas hit14 year high

• US stockpiles well below the 5-year average are caused by the increased gas exports to European countries. If supplies from Russia to EU countries are stopped, gas prices in the United States may rise to levels not recorded since 2008 (at the time when the US was still a net importer of gas)

• In Europe, gas inventories are rising, but are still well below the 5-year average in terms of warehouse capacity

US gas stockpiles are still below the 5-year average, which is related to the increased exports of LNG to Europe. Gas production in the US has already returned to the highest levels in history, therefore the storage facilities should be full before the next heating season. Source: Bloomberg

Stockpiles in Europe are rising, however if Russiadecided to halt gas exports then demand for the US gas may increase significantly, which would boost prices. Source: Bloomberg

The price level in Europe in terms of US units is stable around USD 30 MMBTU. Taking into account the costs of transport, liquefaction and regasification, the price in Europe is still very attractive for producers in the United States given the recent local price increases in the US. Source: Bloomberg

Wheat:

• Quality of winter wheat crop returned 30% (share of excellent quality crop)

• Quality of wheat may be low due to low temperatures recently

• Wheat price broke above 1115 cents per pound and threatens to erase a recent correction

• Wheat is also highly correlated with oil prices. Higher wheat prices are possible in case oil returns to $120-130 per barrel

• On the other hand, outlook for South American crops and, especially, Eastern European crops is very poor

A very poor start of the season for winter wheat. Such big drops in quality (yellow line, inverted) are usually accompanied by big price gains. However, the current rally is more related to geopolitical factors in Eastern Europe rather than weather or crop quality. Source: Bloomberg

WHEAT tested 38.2% retracement of a recent correction in a potential signal for bulls. On the other hand, rally on the oil market eased recently. Source: xStation5

Coffee:

• Brazilian real continues to strengthen

• Coffee stockpile once again begin to fall and continue to sit on low levels

• Number of long speculative position on the coffee market begins to rebound

• Seasonal patterns show that coffee gains the most during summer and fall

• Pandemic in China may once again disrupt global logistics what may reduce availability of commodities that are not considered essential

Coffee stockpiles begin to fall once again and remain at low levels. Source: Bloomberg

COFFEE defended important support in the 210-220 cents per pound area. Net speculative positioning on futures markets increases following a brief drop. Source: xStation5