Commodity Wrap - Oil, Natural Gas, Soybean, Coffee

In this week’s commodity wrap we present you 4 markets that look interesting or/and have posted some major price moves: Oil, Natural Gas, Soybean and Coffee.

Oil:

• Market expectations suggest the OPEC could cut output by 1-1.4 mbpd

• There is a possibility that we’ll be offered an agreement to slash production without specific numbers

• Putin backs output cuts but Russia would lower its production from the relative high levels leading to a higher production level compared to the agreement achieved last year

• OPEC could consider cutting production by 3-6 months which could result in a further (but limited to around $50) decrease in oil prices

• Oil output in Canada is expected to be cut by 325 kbpd due to inflated inventories and a substantial decline in WCS prices

• Iran threatens to block the Strait of Hormuz if the US tightens its stance on the country

Oil prices are rebounding. A production cut should bring a wave of changes when it comes to the next year implied stocks. Source: xStation5

OPEC along with Russia have their oil output at the similar level to the one seen in 2016. However, the cartel is unlikely to cut its output by the same amount as it did two years ago whereas Russia could easily reduce its production (it has a high starting point). In turn, the US is currently producing 2 mbpd more compared to 2016. All it means a lack of upward pressure on crude prices. Source: Bloomberg

Natural gas:

• There are some speculations that January could be colder than usual

• European models suggest temperature in January could fall more than usual between January and March leading to some gains in natural gas prices seen currently

• Production hits its record high at 87 Bcf/D

• A possible triangle pattern in the natural gas market, the market looks to be overbought based on the COT data

The market looks to be overbought based on the COT data, the third time this year. Source: cotbase.com

Natural gas prices are moving slightly below the upper limit of the triangle pattern. If this week shows a decrease in stocks, it could lead to a pullback in prices. Source: xStation5

Soybean:

• Soybean prices have moved lower of late due to a lack of details of the agreement struck by the US and China over the weekend

• Chinese Ministry of Commerce suggests that China could take steps to improve relations with the US

• China has reportedly ordered to buy more commodities

• Brazilian soybean prices have been falling in anticipation of successful crops, China should switch soon to the US to buy the commodity

• Duties on US agricultural goods are to be implemented when harvest time in Brazil comes

• African swine fever virus (ASFV) could reduce Chinese demand for soybean

An increase of US soybean prices seems to be contained due to a huge decline in Brazilian prices and a lower demand from China. Any rises could be halted at a range between 950c and 990c per bushel. Source: Bloomberg

Rises in US soybean might be limited due to a lower demand for the grain from China and lower Brazilian prices. Source: xStation5

Coffee:

• Recent falls in BRL as well as a higher pace of Brazilian exports could exert downward pressure on coffee prices

• The weak BRL increases the competitiveness of Brazilian coffee

• Speculators have trimmed their shorts in recent weeks

• A strong technical support could be found nearby 103c per pound

A significant reduction in short positions while long positions remain at the extremely low level. Source: Bloomberg

Brazil has seen the higher pace of coffee exports so far this year. Source: Bloomberg

In the short term coffee prices could bounce back only due to the weaker real. Technically there is a possibility to a deeper decline even toward 103c per pound. Source: xStation5