Last Week's European Commodity Winners
Cocoa #7 (CAH25), +15.53%
European Cocoa again is looking to hit the last record at 10,265 GBP last April. Reuters reports improved port arrivals at +33% from last season, which should be taken as bearish news. However the market for now is focused in one direction.
The March cocoa contract continues its solid trajectory upwards with a steepening slope. Current prices are far above the 10-, 20-, and 50-day exponential moving averages (EMAs). The setting is explosive and the March implied volatility remains high at 58%, with the highest recent record of 70% set on Nov. 25.
At these levels a sharp correction is very likely, so long traders should exercise caution.
Options do not show good liquidity for this contract. Only the 11,000- and 10,000-strike calls, with daily volumes above 1,000 contracts, have enough activity.
The forward curve points sharply downwards into 2025, with the May contract already marking 8,968 and the December 7,313.
Heating Oil (LOG25), +3.35%
The latest EIA report for December 2024 highlights several key points about heating oil and its expected trends this winter. U.S. distillate inventories, including heating oil, are expected to remain below last year’s levels throughout winter, influenced by reduced refinery outputs and sustained demand.
While heating oil prices have stabilized compared to the record highs of last year, colder weather and constrained supply chains will likely respect the recent bottom at $2.15.
Heating oil is moving since October in a range between $2.15 and $2.30. Traders will need more fundamental reasons for a breakout, so trading the range has more chances of success for now.
The 14-day Relative Strength Index (RSI) is at 55.39, in neutral territory, reflecting the lack of direction.
Crude Oil Brent (WIG25), +2.26%
Although locked in a range, the market is watching the latest bearish news from China. U.S. consumption at 19 million barrels per day (bpd) remains stable, so improved demand should come from elsewhere.
China's house index fell in October, retail sales at 3% were below expected, and the latest monetary stimulus so far has not impressed traders.
Similar to heating oil, the Brent contract is locked in a range between $70.50 and $75. Prices are above the 10, 20, and 50 EMAs, all of which are around 73.
The 14-day RSI is at 54, and shows no clear trend since the middle of October. The forward curve indicates lower prices into 2025, with July 2025 at $72.
Traders will likely be focused on trading the range, or any breakout above $75 or below $70.
Last Week's European Commodity Losers
Dutch TTF Gas (TGF25), -10.21%
Forecasts of warmer-than-expected temperatures for the winter months have crushed natural gas contracts both in Europe and the U.S. Added to that, the U.S. is replacing some gas production with wind output.
By Nov. 1, storage levels exceeded the EU's 90% target, with European natural gas consumption already down due to government policies promoting energy efficiency.
The contract has broken downwards below the 10, 20, and 50 EMAs, with 4 consecutive candles falling sharply. The last daily candle pattern shows a dragonfly doji, which could signal an end to the the massive sell-off of recent sessions. This could prove to be an interesting entry opportunity for long traders.
The RSI has been a reliable indicators for this contract in the past, and the most recent reading at 32 indicates "oversold," giving more arguments for those looking to start long positions.
White Sugar #5 (SWH25), -4.61%
There is an oversupply in some key markets: Europe, India and Thailand. Add to that the additional imports from Ukraine, and the total sugar output for EU for the 2024-2025 season will be up by 6%.
White sugar is down 12% so far this year, and most trend indicators point to “Sell.” Prices are in a clear downtrend, having broken the 10, 20, and 50 EMAs. From its peak on Sept. 26, the only trend so far has been down.
Traders who have shorted around the 10 EMA have been rewarded in the last sessions. Those waiting for a long entry should check the next key resistance at 505.
