Commodity Wrap - Oil, Cocoa, Gas, Coffee (10.12.2024)

Oil:

• OPEC+ has postponed their production restoration timeline. The monthly production increase of 180,000 barrels will now begin from April next year, rather than the originally planned Q4 2024

• The complete withdrawal of production cuts has been delayed by a year until the end of 2026

• The United Arab Emirates indicated they will also delay their planned 300,000 barrel per day production increase from January to April

• Market reaction was muted as this possibility had been previously speculated. Additionally, the delayed supply restoration indicates expected weak demand next year

• Due to expected oversupply, Bank of America's latest forecast predicts an average Brent crude price of $65 per barrel

• Oil responded positively to news about further monetary policy easing by PBOC next year. WTI crude bounced from around $67 to $68 per barrel

U.S. crude oil inventories haven't changed significantly in recent weeks. Price development will crucially depend on inventory behavior at the start of next year. OPEC+ is limiting production, so inventories should decrease in the first 3 months. However, it's worth considering what happened in 2023, when inventories increased very strongly in the first weeks. Source: Bloomberg Finance LP, XT

Price bounced on Monday from the upward trend line, but the market remains under pressure from supply increase expectations next year. Currently, the key supply zone for the price is between the 25 and 50-period moving averages. Source: xStation5

Cocoa:

• Significant supply uncertainties for upcoming weeks drove substantial price increases

• New weather forecasts from Maxar Technologies last Wednesday indicated that high temperatures and dry air in West Africa could harm cocoa pod development before the mid-season harvest starting in April

• The 23/24 season saw major production issues specifically during mid-season

• The seasonal Harmattan winds are approaching, which could further exacerbate drought conditions in West Africa

• Cocoa deliveries to Ivory Coast ports during December 2-8 were the lowest since late October at 85,000 tons

• Since October 1, deliveries reached 820,000 tons, compared to 610,000 tons in the previous season

• Cocoa prices have been rising since Wednesday, December 4, and continue to rise at the start of the next week. Prices not only broke above $10,000 per ton but also surpassed June peaks, reaching highest levels since April correction. Currently about 13% below historical April 2024 peaks

Cocoa prices are rising strongly again due to emerging uncertainty about mid-season harvest. Prices are also reacting to uncertainty about current cocoa supplies. Source: xStation5

The futures curve from a one-week perspective is rising very strongly at the short end, indicating that the current season (contracts until September) is highly uncertain. Prices at the short end increased by $1,500, while for September next year, the increase was $1,300. Source: Bloomberg Finance LP

Natural Gas:

• U.S. natural gas demand is declining week-over-week due to above-average temperatures reducing heating needs

• Forecasted average daily gas demand this week is expected at around 130 billion cubic feet, approximately 5% lower than previous week

• Next week projects a further decline to 125 billion cubic feet daily (average), nearly 4% lower

• 6-10 and 8-14 day U.S. temperature forecasts indicate above-normal temperatures, suggesting possible further price declines

• Gas prices showed a significant upward gap at week's opening due to consumption uncertainty, but have since reduced gains by almost 4%

Recent gas consumption data indicates relatively high gas uptake. At the same time, production has returned to around 105 billion cubic feet per day. Source: Bloomberg Finance LP, XTB

Inventories remained flat in recent weeks, but the next 2 weeks should bring significant decreases. However, from a seasonality perspective, large inventory drops should have occurred several weeks ago. The average decline recorded in the second week of December is about 55 bcf, while gas consumption data suggests an inventory decrease of even 75-100 bcf, which may increase short-term volatility in the gas market. Source: Bloomberg Finance LP, XTB

Two-week forecasts indicate a return to high temperatures. This should theoretically trigger price movements in line with seasonality. Source: NOAA

The 5-year average gas price behavior indicates declines, although the last 5 years have also seen occasional significant December increases. However, weather changes suggest reduced gas consumption in the second half of December. Source: Bloomberg Finance LP, XTB

Coffee:

• Coffee prices reached new historic highs at 348 cents per pound on December 10, 2024

• Recent record low Brazilian Real against USD encouraged exporters to utilize their stocks

• Farmers currently holding coffee from previous harvests anticipating further price increases

• Recent increase in coffee exports could have affected market prices due to greater short-term availability

• Brazilian green coffee exports increased 2.7% year-over-year in November to 4.29 million bags

• Meanwhile, declining coffee exports from Vietnam led to another strong increase in Robusta prices due to concerns about this type of coffee's availability. November exports fell 49.1% year-over-year to 60,000 tons. Exports from the beginning of the year through November reached 1.2 million tons, down 14.3% year-over-year

• The recently concluded season in Vietnam produced 1.47 million tons, lowest in 4 years and down 20% year-over-year. The 24/25 season is expected to produce slightly less than the previous season

• Additional concerns have emerged about harvest quality and further export prospects from Vietnam due to floods in the country

• Sucden Financial indicates that many exporters in Brazil decided to exit their short positions in coffee by purchasing futures contracts, which further drove up coffee prices in recent months

• Current poor weather in Brazil related to earlier El Niño effects could lead to significantly reduced coffee production forecasts for the 2025/2026 season. The current drought in Brazil is the worst since 1981

• The latest FAS USDA report indicates Brazilian production will reach 66.4 million bags. Previous forecast suggested production above 69 million bags

Coffee prices are rising to highest levels in history, breaking through 1977 levels. It's worth noting that back then, the increases started from a significantly lower level than the current upward wave. Source: Bloomberg Finance LP, XTB

Since early November, Arabica coffee prices have seen a 43% increase, matching cocoa price increases (not accounting for futures contract rollovers). Robusta coffee is also rising strongly, but the correction at the November/December transition was stronger for this type of coffee. Source: Bloomberg Finance LP, XTB

The current coffee price increase is very similar to what happened in 2008-2011. However, the current increase is faster, and there are no indications of weather improvement next year. Source: xStation5