Positive and temporarily stable sentiment has returned to the world raw material market after the sell-off at the beginning of the week. Prices of many industrial and energy raw materials, including coffee, oil, etc., have recovered and improved.

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Coffee prices turn up

At the end of the trading session on August 6, the prices of both coffee products skyrocketed. Of which, the price of Arabica coffee jumped 4.54%, reaching a two-week high; the price of Robusta coffee jumped 4.98%, to 4,383 USD/ton. Concerns about the prospect of new crop coffee supply in Brazil combined with the weakening USD/BRL exchange rate created a double support to push prices up.

Arabica coffee prices gaped up at the opening as the market received more negative signals about the outlook for coffee supplies in the 2024-2025 crop year in Brazil. Cooxupe - Brazil's largest coffee producer and exporter cooperative - said that crop failures are occurring in its coffee growing areas, with output expected to remain unchanged from the previous crop. This is far from the cooperative's initial forecast for the 2024 coffee harvest. Previously, Cooxupe expected to receive about 7 million 60kg bags of coffee, including products sourced from non-cooperative producers, up 7.7% from the previous year.

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Meanwhile, consulting firm StoneX has lowered its forecast for Brazil’s 2024-25 coffee output to 65.9 million 60kg bags, down 1.7% from its previous forecast. The cut is mainly due to a drop in Robusta production. Robusta bean output is currently estimated at 21.2 million bags, down 6.8% from the previous forecast.

Another indicator of supply concerns is inventory data. Despite improvements over the past two months, coffee inventories in major importing countries remain low compared to the same period in many years. This partly reflects the current supply shortage in the market. As of the end of June, coffee storage at European ports, the world's largest coffee consuming and importing market, stood at 384,240 tons, down 26% compared to the same period last year and the lowest inventory level compared to the same period in 2018-2024. In addition, coffee stocks in Japan, the world's third largest coffee importer, were 12% lower than the five-year average.

In addition, the Brazilian Real strengthened yesterday, causing the USD/BRL exchange rate to fall by 1.07%. The narrowing of the currency gap between the world's largest coffee importer and exporter has created a mentality of limiting coffee sales by Brazilian farmers due to less foreign exchange earned. This could lead to expectations of a narrowing of supply in the market, especially when the outlook for the new crop of coffee in Brazil is no longer positive.

Oil markets up after EIA outlook report

At the close of yesterday's trading session, oil prices recorded a recovery following the short-term energy outlook report of the US Energy Information Administration (EIA), in addition to support from geopolitical risks. At the end of the session, WTI crude oil increased by 0.36% to 73.2 USD/barrel, Brent crude oil increased by 0.24% to 76.48 USD/barrel.

Iran has vowed retaliation against Israel and the United States after the killing of two of its leaders, raising fears of a wider war brewing in the Middle East that could have a direct impact on supplies from the region.

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Meanwhile, in its August Short-Term Energy Outlook, the EIA maintained its 2024 oil demand growth estimate at 1.1 million barrels per day. Meanwhile, supply was revised down slightly by 70,000 barrels per day from the previous report. The EIA maintains its view that the market will be in deficit this year. With the Organization of the Petroleum Exporting Countries and its allies (OPEC+) cutting production, the EIA estimates that the deficit in the third quarter will still be the largest, averaging 880,000 barrels per day.

Despite lowering its forecast for average WTI oil prices in 2024 by about $3/bbl compared to its previous forecast, EIA expects the market to continue its upward momentum in the second half of the year, pushing prices to an average of $82.50/bbl, about $10/bbl higher than current levels. EIA’s optimism has provided a slight support to the market.

Meanwhile, OPEC production in July was reported by the EIA to average 26.68 million barrels per day, up more than 400,000 barrels per day and 300,000 barrels per day above the quota. However, this information did not surprise the market as a previous Reuters survey had also indicated this.

Unlike the 2023 scenario, U.S. production growth this year will not be able to offset the OPEC+ cuts. U.S. oil and gas production growth continues to show signs of slowing. Total crude oil production from the Lower 48 states, excluding federal waters in the Gulf of Mexico, averaged 11.0 million barrels per day (bpd) in May, up just 400,000 bpd from the same month in 2023 and the lowest seasonal increase since the Covid-19 pandemic.

In addition, the US Department of Energy said on August 6 that it is proposing to buy 3.5 million barrels of oil to help replenish the Strategic Petroleum Reserve (SPR) in January 2025. The US's continued signals to buy more crude oil to replenish the reserve are also positive news for oil prices.

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