By Daniel Hynes
Weak economic data and warnings that growth will continue to slow due to tighter monetary policies saw sentiment suffer across commodity markets. A stronger USD also weighed on investor appetite.
Crude oil prices pushed higher to end the session at the highest level since March amid strong fundamentals. The Energy Information Administration lowered its estimate of gasoline demand in its latest short term energy outlook. It also raised its estimate of production as a result of higher prices. It expects the European ban on Russian oil will result in an 18% drop in the country’s fuel output by the end of 2023. And with inventories still expected to remain well below their five-year average, tightness in the market will remain an issue. This was followed by a host of Wall St firms ramping up their forecasts for crude oil in the second half of the year. The relatively buoyant mood saw Brent crude end the session strongly and settle at USD121/bbl. In the immediate term, the market is watching a couple of supply side issues. Libya’s Shara oilfield halted production after a brief restart this week after gunmen stormed the field and forced workers to stop operations. In Norway, offshore workers are threatening to strike over a new pay deal.
European natural gas fell for a fifth consecutive day amid soft demand and ample LNG supplies. The onset of summer has seen demand fall, putting less pressure on the energy system following disruptions earlier this year. Indeed, the issues of payment for Russian gas with rubles appears to have subsided, with EU leaders reluctant to provide more advice on what can or can’t be done. Russian producer Gazprom has also said it is unlikely to impose further cuts for the time being. Ample LNG imports, particularly from the US, have enabled storage facilities in the continent to reach 50% capacity. This is the first time it has been back in the five-year range since this time last year. Even so, a fall in Russian shipments to Germany through the Nord Stream pipeline is raising some concerns. This comes ahead of what could be a strong season of buying from Asia which could see LNG cargoes remain well bid for. This was part of the reason for North Asian LNG prices holding steady yesterday despite the fall in European markets. Japanese buyers have been particularly keen to secure LNG cargoes, as it faces shortfalls from nuclear power. China is also showing signs of returning to the market.
Copper pulled back slightly from its three-month high amid global growth concerns. The market seemed concerned by a swathe of reports from retailers highlighting bloated inventories of unsold merchandise. This comes as central banks look to combat inflation with tighter monetary policies. These concerns have been largely offset by the spectre of China exiting lockdowns that have been a drag on global demand for metals. In Beijing, authorities allowed public transport to restart in most areas, while offices and restaurants are allowed to reopen. Traffic in Shanghai is also picking up. A rebound in demand will be difficult for the copper market to handle, with inventories rapidly declining in recent weeks. Stockpiles fell in tonnage terms by their biggest amount in two decades.
The weakening economic backdrop saw gold find some support from investors. The precious metal pushed above USD1850/oz, despite a stronger USD. Sentiment was boosted by a major conference in Singapore amid talk of high inflation, geopolitical turmoil and growing talk of recessions.
Iron ore extended recent gains amid more signs that China may be past the worst of the COVID-19 outbreak. The steel-making raw material climbed to USD147/t in Singapore as investors look toward further stimulus measures.
Data source: Commodities Wrap