Commodity Wrap - Oil, Gold, Cocoa, CO2 emissions

In this week’s commodity wrap we present you 4 markets that look interesting or/and have posted some major price moves: Oil, Gold, Cocoa, CO2 emissions.

Oil:

• Oil prices rose 18% in January, the biggest monthly jump in this month ever

• The US considers releasing its strategic oil reserves due to lower imports from Venezuela

• Alberta, the Canadian province, slashes oil output as it earlier announced, Canadian oil prices may even more increase on the back of a decrease of imported crude from Venezuela

• A majority of forecasts suggest that crude output in Venezuela will fall to 0.9 mbpd from 1.2 mbpd; moreover, the forecasts concerning Venezuela’s exports foretell a fall to 0.4 mbpd

Crude imports from Venezuela are likely to fall further. In turn, imports from Canada, Ecuador, Brazil and Mexico are rebounding. Source: Twitter

Oil prices are hovering around $63. However, if Venezuela’s exports slump, it could drive prices higher. Source: Bloomberg

Gold:

• GFMS suggests gold production to fall this year compared to 2018

• Investment demand is likely to continue rebounding (especially from ETF funds), whereas jewellery demand should stay muted

• GFMS expects gold prices to average at $1292 this year

• The recent level of prices has not encouraged producers to increase CAPEX lately which affects mined output

Gold production may decrease another year in a row. It could reach the lower level in 10 years. Source: Bloomberg

CAPEX of major firms has been falling in recent years. Source: Bloomberg

Gold prices have fallen in recent days in response to the stronger USD. If US yields come back to fall, then gold prices could be supported. Source: xStation5

Cocoa:

• Significant increase in demand dynamics in the past years

• Slight drop in supply in 2018 but balance on the cocoa market remains negative for prices

• Rainfalls in Africa and no threat from Harmattan winds results in good conditions for cocoa cultivation what may lead to upward revision of crop forecasts for the next harvest season

Demand for cocoa rebounded in the past few quarters. The nearest harvest season should be generous but lower cocoa prices may lead to higher demand from grinders in a bid to boost margins. Source: Bloomberg, XTB Research

Cocoa is trading around $2200 per tonne at press time. In theory, higher demand should cause stocks-to-use ratio to fall and in turn exert upward pressure on prices. Source: Bloomberg, XTB Research

Decline of 10% on cocoa market in January could have been overdone. On the other hand, fundamentals are mixed, especially when it comes to the supply side. Source: xStation5

EMISS:

• Temperatures in Europe expected to rise

• Coal and CO2 emission prices dropped in the aftermath of Germany’s decision to phase out all coal power plants by 2038

• Brexit is one of the key factors for emission prices - lack of a withdrawal deal could exert downward pressure over the short term

• In case no Brexit deal is agreed on, the UK power utilities are likely to start massive sell-off on the CO2 emission market as they would no longer need such contracts

CO2 emission prices may fall over the short term on the back of higher temperatures in Europe. Source: Bloomberg

EMISS price is trading within a consolidation range since mid-December 2018. Source: xStation5