By Daniel Hynes
A risk off tone across markets weighed on sentiment across the commodity sector. Profit taking ensued, with the energy sector experiencing the biggest losses.
Crude oil fell amid a bearish tone across broader asset classes. Sentiment was weaker following a slew of companies reporting weak quarterly results. This follows mixed economic data in recent weeks. The sell-off was constrained by expectations of a strong rebound in demand from China, the world’s largest crude importer. Consensus forecast for growth in 2023 sits at 800kb/d, according to Bloomberg data. This presents an issue for the OPEC+ alliance. Delegates are expecting an advisory committee of ministers to recommended keeping oil production unchanged when they meet next week. Uncertainty around Chinese demand in the short term remains the main issues. They are also waiting for more clarity on the impact of sanctions on Russia supply. In the US, gasoline prices are rising earlier than usual this year amid meagre inventories and higher than normal refinery maintenance. According to the AAA, it averaged USD3.446/gallon on Monday, its highest level ever for this time of the year.
European gas fell sharply as the demand outlook weakened. The current cold snap is expected to end, with warmer temperatures across the bloc due next week. This comes amid high storage levels and strong deliveries of LNG. That supply could increase further as the Freeport LNG operation edges closes to a restart. Its completed repairs and is seeking a partial restart; although there is no clarity on when shipments will begin. This also weighed on North Asian LNG prices, with the Japan-Korea Maker falling nearly 5%.
Copper declined as the risk off tone across market sparked profit taking following strong gains this month. A stronger USD also weighed on investor appetite. The key industrial metal has gained 11% this year as China’s reopening has raised expectations of a strong rebound in demand. The market has also been suffering from ongoing supply side issues. Codelco, the world’s largest producer, said it produced 172kt less copper last year than in 2021, with operational setbacks accounting for 77% of the lower output. In recent weeks, social unrest has hampered output in Peru. MMG said its Las Bambas copper complex is mining at a reduced rate due to blockade-related supply challenges. Supply issues are prevalent across the base metal sector, with Norilsk Nickel planning to cut nickel output and slash production of cobalt this year. Disruptions to shipping and logistical and insurance issues emanating from the Ukraine war were blamed for the reduction.
Gold inched higher as the market was hit with mixed economic data. US business activity contracted for a seventh month. However, a measure of input prices firmed in a sign of lingering inflationary pressures. The precious metal has gained 6% this year; however, exchange-traded funds investors are yet to participate in the rally. Holdings of gold ETFS are little changed so far this year.
Data source: Commodities Wrap