By Daniel Hynes
Sentiment across markets was boosted by further signs of easing inflationary pressures. Commodities gained as the subsequent weaker USD supported investor appetite in the sector.
Crude oil gained as focus returned to supply side issues. Markets were on edge after it was reported that Russian missiles had crossed into Poland. However, prices spiked late in the session after a key pipeline bringing Russian oil to Eastern Europe was halted after power was cut. The Ukrainian pipeline manager said Russian artillery was the cause. The halt affects flows to Hungary, Czech Republic and Slovakia. The length of the pipeline outage is still unknown. This comes ahead of European sanctions on Russian crude oil imports on 5 December. Crude oil prices had been under pressure earlier in the session amid concerns over demand. The International Energy Agency said that global oil consumption is poised to contract by 240kb/d this quarter compared with a year ago. Earlier this week, OPEC also voiced its concern about demand and subsequently cut its fourth quarter demand forecast. Rising COVID-19 cases in China also weighed on sentiment, despite hopes of easing virus restrictions earlier in the week. Several major cities continue to record high levels of cases. Travel also remains subdued across the country as the public remains concerned it will be caught up in quarantine.
European natural gas rebounded amid the first signs of colder weather. Temperatures across the continent are set to dip toward the end of the week. This could see heating demand rise and drawdowns of inventories commence. This was exacerbated by ongoing supply side issues. The Freeport LNG export facility will likely extend an outage that began in June. The company told buyers that it will cancel shipments scheduled for November and December as it continues repairs and regulatory approvals before a restart. The plant previously accounted for 15% of US exports and was a key supplier of supply to Europe. The combination of stronger demand and supply side issues saw Dutch front month futures end the session up 9.2% to EUR124.10/MWh. Further delays to Freeport LNG exports also pushed North Asia LNG prices higher. However, this was tempered by falling expectations of China re-entering the market as COVID-19 continue to rise.
Supply side issues also rattled base metal markets. Nickel prices spiked more than 7% following reports of production cutbacks at the Goro mine in New Caledonia. A leak of ‘salt-laden liquid’ from its tailings dam after heavy rains in August was the cause of the disruption. Corrective measures required by local authorities will see output fall substantially in the fourth quarter. This follows reports on Monday of a blast at a nickel plant in Indonesia. This was later denied by the owner of the operation; however, it highlights the precarious position that metal markets are in. Low inventories and robust demand will see future supply disruptions result in a spike in prices. Sentiment across the sector was also supported by a weakening USD.
Iron ore gained for a third day after China boosted support for its real estate sector. Futures in Singapore hit USD95/t following Chinese regulators issuing a 16-point plan earlier this week that is expected to support struggling developers. Demand has been weak of late, with Chinese steel output falling to 80mt of steel in August.
Gold rallied amid rising geopolitical risks and a weaker USD. Reports of Russian missiles crossing into Poland heightened already elevated geopolitical tensions. Investor demand was also supported by a weaker USD which was sparked by the lower than expected producer price inflation.
Data source: Commodities Wrap