By Daniel Hynes
A risk-on tone across markets helped pushed the commodity complex higher. Industrials led the gains amid increasing hopes of stimulus boosting economic activity. A weaker USD also boosted investor appetite.
Crude oil prices struggled to keep their head above water as the EU’s proposed ban on Russian oil looks increasingly unlikely. Hungary has been holding out on the unilateral ban, asking for more time to allow it to find alternative sources. Prime Minister Viktor Orban said that progress on a deal will likely slip into next month. The EU has offered to phase in the sanctions to 2024, while Hungary has indicated it needs at least EUR770m to revamp its oil industry. The bloc’s leaders are scheduled to meet next week to continue to nut out a deal. In the meantime, Russian oil continues to flow. Overall shipments edged lower in the seven days to 20 May, with a total of 30 tankers loading about 24mbbls from Russian terminals. This equates to average flows of 3.44mb/d, down only 3%. This is despite EU financial sanctions that came into effect on 15 May. Nevertheless, the risk of higher prices remains. International Energy Agency Executive Director Fatih Birol said that “we may see prices even going higher, becoming much more volatile and a major risk for the global economy”.
European natural gas prices fell to a fresh low, as strong flows of gas boost storage levels. Dutch front month futures settled down 5.3% to EUR83.29/MWh, the lowest level since 22 February. The European Union has been rushing to fill stockpiles during the seasonal slowdown in demand in an effort to protect it from future disruptions to supply. This has been met by increasing levels of LNG reaching the continent. Europe’s imports rose almost 70% in the first four months of the year, which has enabled the continent to lift its storage levels to 42.6%. This compares with the average five-year level of 45.9% at this time of the year. Russian gas flows remain under threat. Russia announced that it will cut off supplies to Finland after it failed to comply with Moscow’s demand to pay in rubles. This follows on from Poland and Bulgaria being cut off last month. The increasing competition for LNG cargoes saw North Asia LNG futures rally. The Japan-Korea Marker futures gained 3.6% to end the session at USD22.60/MMBtu.
European carbon extended recent falls, hitting its lowest level in more than five weeks. The selling followed weak auction results and continues concerns over the European Commission’s intention to sell as many as 250m EUA to fund its shift away from Russian fossil fuels. EUAs ended the session down 2.8% to EUR77.79/t
The weaker USD helped investor appetite in the base metals sector. Gains were supported by hopes that stimulus measures in China will boost demand. Chinese authorities cut a key interest rate for long term loans by a record amount earlier this week. This should support the country’s beleaguered property sector, a key source of metals’ demand. The International Aluminium Institute reported that output was flat y/y in April at 5.6m tonnes. However, China managed to reach a record high of 109kt/day in the same month.
Gold also benefited from the weaker USD, after US President Joe Biden signalled he’d reconsider China tariffs imposed by the Trump administration. The selling that pushed the precious metal to a three-month low last week has abated, with exchange traded funds now seeing inflows. Nevertheless, gains have been limited by rising bond yields as the US Federal Reserve ratchets up monetary tightening. Investors are looking ahead to the minutes of the Fed’s most recent meeting for any clues on the future path of monetary policy.
Data source: Commodities Wrap