Commodity wrap - oil, gold, coffee, aluminum (18.01.2022)

Oil:

• Oil prices reached highest level since 2014 due to one-off factors and a change in expectations regarding potential oversupply this year
• Temporary production cuts in Libya and Kazakhstan and the tense situation in the Middle East are boosting oil prices
• Both major grades of oil - Brent and WTI - trading over 12% year-to-date higher. Crude oil and its products are the best performing commodities since beginning of 2022
• Goldman Sachs expects the Brent crude oil price to reach the $ 100 region in Q3 and Q4 2022. On average, the price should reach $98 level this year and $ 105 in 2023.
• GS expects OECD stockpiles to fall to their lowest level since 2000 before summer
•  OPEC + spare capacity is expected to fall to an all-time low of 1.2 million barrels per day, which, in the absence of adequate investments, could slow down production growth in the coming years.
• Majority of institutions does not expected additional supply from Iran to arrive on the markets before Q2 2023

Brent crude oil price jumped to $88.00 per barrel, while the WTI crude oil is testing the area of $85.00. It cannot be ruled out that with such a strong supply zone, which is marked with the local lows from the beginning of the previous decade, may put some downward pressure on prices. On the other hand, should a break higher occur, the next target for WTI bulls is located around $91.50. This level coincides with 127.2% external Fibonacci retracement of the last downward impulse and the local lows from 2013. Source: xStation5

Gold:

• The strong rise of US bond yields is once again putting downward pressure on gold prices
• TD Securities and World Gold Concil indicate that real interest rates will remain very low, even despite potential rate hikes in the US
• Fund managers reduced the number of speculative long positions on gold futures and slightly increased the number of short positions
• The amount of long speculative positions is at its lowest since August 2021
• ETFs remain passive in anticipation of further changes in monetary policy
• In the 2022 outlook report, the WGC shows that the price of gold was falling before the first hike and gained within 6 and 12 months after the first hike (also compared to other assets)

The number of long positions has been significantly reduced and ETFs remain passive. As one can observe, investment demand for gold is very limited in anticipation of interest rate hikes. Source: Bloomberg

Looking at the historical performance of gold after the first hike in the cycle, we can see that the price of this precious metal performed quite positively. Source: WGC

Coffee:

• Coffee has been gaining ground in recent weeks, approaching the highs of late 2021
• The outlook for coffee has slightly worsened due to the further development of the pandemic. Starbucks and Chipotle Mexican Grill indicate that they partially limit access to their cafes and restaurants. The number of take-away meals is increasing again
• The Green Coffee Association in the US points to a further strong decline in green coffee inventories - stockpiles tracked by GCA are close to the lowest levels since mid-2015
• Port inventories tracked by ICE show another strong decline and amount to only 1.4 million bags (coffee for delivery)
• Recently, the weather in Brazil has been unfavorable for farmers - floods cause problems in planting new trees and increase the chances of the emergence of diseases which could threaten limited number of trees that remained after last year's frosts and droughts​​​​​​​

The coffee stockpiles available for ICE deliveries continue to decline. Source: Bloomberg

Aluminum:

• The price of aluminum has returned to around $ 3,000 per ton
• Last year brought a lower increase in aluminum production and a very strong consumption
• The outlook for 2022 remains similar, which is associated with high costs in the form of energy prices
• Further efforts to reduce emissions in China and high energy prices could lead to a slowdown in supply growth in that country. In addition to high energy prices in the fourth quarter of last year, there was also a problem of the lack of energy supplies, which reduced aluminum production
• The semiconductor scarcity problem is expected to end in 2022, increasing car production and further reducing global aluminum inventories.

ING expects the deep deficit on the aluminum market to continue. Source: IAI, ING Research

Aluminum inventories were drained to their lowest levels since 2005. Source: Bloomberg