Commodity wrap - Oil, Natgas, Copper, Coffee (08.10.2024)

Oil:

• Oil prices have retreated for the first time in eight sessions. A decline is attributed to the lack of escalation in the Middle East and the return of production in Libya and Iran.
• WTI crude is approaching $75 per barrel, while Brent crude is testing the $79 per barrel level.
• Goldman Sachs believes that an attack on Iran's oil infrastructure could cause prices to permanently return above $90 per barrel.
• ANZ suggests that an attack on Iran's oil infrastructure is currently unlikely. Additionally, OPEC+ has significant spare production capacity, at around 7 million barrels per day which may be used in case of supply disruption coming from Iran. 
• Saudi Arabia has spare capacity of around 3 million barrels per day, with current production at 9 million barrels per day. However, Saudi Arabia can realistically increase production by 1 million barrels per day quickly and by up to 11 million barrels per day within a few months.
• Record-low positioning on Brent crude is starting to rebound. Long positions are increasing, and short positions are being reduced. Net positions are returning to above zero levels.

Net positions on Brent crude are returning to positive levels. Source: Bloomberg Finance LP, XTB

The increase in Brent crude since the beginning of the conflict remains double-digit, but the lack of further escalation could lead to a return to the average. Source: Bloomberg Finance LP, XTB

Brent crude is retreating from around $81 per barrel and is currently trading below $80 per barrel. Theoretically, this could be the first daily price decrease in 8 days. However, since Monday's close last week, oil has gained over 10%. Source: xStation5

Natural Gas:

• Gas consumption remains at elevated levels, which is related to the still high consumption of gas by power plants in the US. Consumption on Monday was 70.5 bcfd and was 5% higher than a year ago.
• However, gas production is falling again and is significantly below the 5-year maximum. Production on Monday was 100.8 bcfd and was 2% lower compared to last year.
• LNG exports from the US increased to 12.2 bcfd and were 11% higher compared to the previous week.
• Change in inventories last Thursday showed an increase of 55 bcf, which was below the expected 62 bcf and significantly lower than the 5-year average indicating an increase of almost 100 bcf.
• The retreat in prices from the beginning of this week has been related to a lower risk of another hurricane in the Gulf of Mexico, which may not harm production in this region.
• The long-term seasonality of gas indicates that the local peak may have already been reached. However, it is also often the case that the peak occurs only in the first half of November. In the medium term, the moment of the start of inventory decline will be important.
• If temperatures are high, as they were last year, prices may experience significant declines after the upcoming roll-over, which will take place on October 17.

Gas inventories are growing, but it is a slower growth than the 5-year average indicates. It cannot be ruled out that by November inventories will reach the 5-year average levels. Source: Bloomberg Finance LP, XTB

Gas consumption remains above average, while production is below the 5-year maximum. This situation suggests a further lower increase in inventories than in previous years. Source: Bloomberg Finance LP, XTB

Long-term seasonality indicates that the potential peak may be close. Of course, it is worth remembering that the roll-over on October 17 will increase the price by about 40 cents. Therefore, it cannot be ruled out that the significant downward pressure may appear only after the roll. Source: Bloomberg Finance LP, XTB

NATGAS price is currently retreating, which may indicate a similar scenario as last year. NATGAS retreated until the roll-over, while after the roll itself in October, the price increased by about 30 cents before a long-term retreat occurred. Source: xStation5
 

Copper:

• Copper price opened on Tuesday with a downward gap, the lowest since September 25.
• Declines in the industrial metals market are related to the lack of concrete actions by the Chinese government, despite recent promises to support the real estate market.
• It is worth mentioning that on the Chinese real estate market, the supply of vacant apartments is about 43 million, while about 8 million are being built. At the same time, annual sales are around 8 million units.
• Most of the demand for copper in China comes from the construction sector, so its problems may be problematic for maintaining high prices of the commodity.
• The credit impulse suggests price consolidation in the next two months. Further data on the credit impulse will be key for future price movement of copper. The lack of its rebound will show that there was no stimulation of credit activity in China, despite the recent interest rate cut.
• Inventories on exchanges are starting to decline significantly, after reaching the highest levels since 2020.
• We are observing a significant increase in long positions in the market. If these positions are not reduced, prices may remain at a high level. It is also worth to mention that recent rebound of long positions are related only to speculations that real estate market in China will be supported highly by government in the near future.

The credit impulse remains largely unchanged recently. Next 2-3 prints of credit impulse will be key for further direction for copper price. Source: Bloomberg Finance LP, XTB
 

Inventories on key exchanges have started to decline again which is supportive for prices. Source: Bloomberg Finance LP, XTB

Long positions are rebounding. In the first half of the year, speculative long positions led to a price increase to the level of $11,000, the highest level in history. Source: Bloomberg Finance LP, XTB

Copper is significantly correlated with Hang Seng CE Index, since the beginning of this year. This means that the increase in the copper price is primarily related to speculative capital, and not necessarily to the real economy. Source: xStation5

Coffee:

• Coffee inventories have stopped growing in recent weeks. Inventories started to rebound at the end of last year, although they remain at an extremely low level in a historical context.
• According to the latest projections, the 2024/2025 season should bring a larger oversupply to the market than the 2023/2024 season. At the same time, however, significant revisions to the forecasts for the 2024/2025 season can be expected, given the recent drought in Brazil and the large number of fires.
• Brazilian authorities indicate that the current drought is the worst since 1981.
• Significant declines in the coffee market since the beginning of this week are the result of significant rains in Brazil, which may improve the prospects for harvests in the current season. Rains are expected to last for up to 2 weeks, which should improve soil moisture and increase the chances of a good harvest in the main season, which begins in May next year.
• The International Coffee Organization (ICO) reported earlier this week that coffee exports in August increased to 10.92 million bags, representing a year-on-year increase of 6.5%. In the 12-month perspective, exports increased to 125.67 million bags, representing a 9.9% year-on-year increase.
• Annual demand is estimated at 170 million bags, but it must be remembered that a lot of coffee is consumed in producing countries, where one of the leading consumers is Brazil.

ee harvest in Brazil will take place in May next year. Until then, a significant revision of the projected production will be possible. Source: Coffee Hunter
 

Coffee inventories on exchanges have stopped growing, which resembles the situation in 2020, 2021, and 2023. Source: Bloomberg Finance LP, XTB

Prices have been falling since the end of September and are at their lowest since September 12. The next important support is around 233 cents per pound. Source: xStation5