The MXV-Index recovered after three consecutive days of decline.

At the close of trading on August 6th, prices for both coffee commodities surged. Arabica coffee prices jumped 4.54%, reaching a two-week high; Robusta coffee prices rose 4.98%, to $4,383 per ton. Concerns about the outlook for the new crop in Brazil, combined with a weakening USD/BRL exchange rate, provided a double boost to prices.

Immediately upon opening, Arabica coffee prices gapped up as the market received further negative signals regarding the outlook for coffee supply in Brazil for the 2024-2025 crop year. Cooxupe, Brazil's largest coffee production and export cooperative, reported crop failures in its coffee-growing regions, with expected yields remaining unchanged from the previous season. This is a far cry from the cooperative's initial forecast for the 2024 harvest. Previously, Cooxupe had projected receiving approximately 7 million 60kg bags of coffee, including products from producers outside the cooperative, a 7.7% increase compared to the previous year.

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In addition, consulting firm StoneX lowered its forecast for Brazil's coffee production in the 2024-2025 crop year to 65.9 million 60kg bags, 1.7% lower than previously predicted. The main reason for the production cut is the decline in Robusta coffee production. Robusta coffee bean production is currently estimated at 21.2 million bags, 6.8% lower than previously forecast.

Another indicator reflecting supply concerns is inventory data. Despite improvements in the last two months, coffee inventories in major importing countries remain low compared to the same period in previous years. This more clearly reflects the current supply shortage in the market. As of the end of June, coffee stocks at European ports, the world's largest coffee consumer and importer, stood at 384,240 tons, down 26% year-on-year and the lowest inventory level for the same period between 2018 and 2024. Furthermore, Japan's coffee reserves, the world's third-largest coffee importer, are 12% lower than the five-year average.

Furthermore, the Brazilian Real strengthened yesterday, causing the USD/BRL exchange rate to fall by 1.07%. The narrowing gap between the currencies of the world's largest coffee importer and exporter is creating a reluctance among Brazilian farmers to sell their coffee due to lower foreign exchange earnings. This could lead to expectations of a tighter supply on the market, especially given the less optimistic outlook for the new coffee crop in Brazil.

Oil markets rallied after the EIA's outlook report.

At the close of trading yesterday, oil prices recovered following the short-term energy outlook report from the US Energy Information Administration (EIA), alongside support from geopolitical risks. WTI crude rose 0.36% to $73.2 per barrel, while Brent crude increased 0.24% to $76.48 per barrel.

Iran has vowed retaliation against Israel and the US following the deaths of two of its leaders, raising fears that a wider war is brewing in the Middle East. This could directly impact supplies from the region.

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Meanwhile, in its August short-term energy outlook report, the EIA maintained its estimate of oil demand growth in 2024 at 1.1 million barrels per day. Supply, however, was slightly revised down by 70,000 barrels per day compared to the previous report. The EIA maintained its view that the market will remain in a deficit this year. With the Organization of Petroleum Exporting Countries and its allies (OPEC+) cutting production, the EIA estimates the deficit in the third quarter will remain the largest, averaging 880,000 barrels per day.

Despite lowering its forecast for average WTI oil prices in 2024 by approximately $3/barrel compared to previous predictions, the EIA expects the upward momentum to continue in the market during the second half of the year, pushing prices to an average of $82.5/barrel, about $10/barrel higher than current prices. The EIA's optimism has provided slight support to the market.

Meanwhile, the EIA reported that OPEC's output in July averaged 26.68 million barrels per day, an increase of over 400,000 barrels per day and 300,000 barrels per day higher than its quota. However, this information did not surprise the market, as a previous Reuters survey had also indicated this trend.

Unlike in 2023, US production growth this year has failed to offset the OPEC+ cuts. Growth in US oil and gas production continues to show signs of slowing. Total crude oil production from the 48 states, excluding the federal waters in the Gulf of Mexico, averaged 11.0 million barrels per day in May, an increase of only 400,000 barrels per day compared to the same period in 2023 and the lowest seasonal increase since the Covid-19 pandemic.

In addition, the US Department of Energy announced on August 6th that it is proposing to purchase 3.5 million barrels of oil to help replenish the Strategic Petroleum Reserve (SPR) by January 2025. The US's repeated signals of purchasing more crude oil to supplement its reserves are also positive news for oil prices.

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