Heightened geopolitical tensions continued to hang over commodity markets. However, fear over further property turmoil in China weighed on sentiment across industrial commodities.
By Daniel Hynes
Crude oil edged lower as traders took stock of Hamas’s surprise attack on Israel. The war has entered its fourth day with Israel continuing to pound Gaza as it prepares for ground operation. However, the longer-term ramifications for the region and the oil market remain uncertain. The risk of the war broadening across the regions remains the chief concern. The surge in prices yesterday was more likely a result of markets assuming Saudi Arabia would not lift voluntary production cuts amid the uncertainty. However, OPEC’s biggest producer reaffirmed its support for efforts by OPEC+ aimed at stabilising and balancing the oil markets. This could see spare capacity released to the market in the event that disruptions occur elsewhere.
European gas surged higher amid concerns about the safety of Europe’s energy infrastructure. The leak in a gas pipeline connecting NATO members Finland and Estonia is suspected to have been caused by a deliberate act of destruction, according to Finland Prime Minister Petteri Orpo. While the rupture of the pipeline is not significant for the European gas market, it raises questions about security of supply at a time of heightened geopolitical risks. Chevron has already been forced to shut down the Tamar offshore gas platform while the conflict’s proximity to the Suez Canal, a major shipping route for LNG to Europe, also raised the risk of disruptions to supply. North Asian LNG prices were also higher amid the supply risks. This was compounded by fears of renewed industrial action at Chevron’s LNG facilities in Australia.
Base metals came under pressure amid renewed concerns about China’s property market. Country Garden Holdings, a major property developer, warned it might not meet repayments on offshore debt. It has also hired advisers, an indication it faces restructuring. This came after the International Monetary Fund lifted its forecast for global inflation and trimmed its forecast for economic growth in 2024. The weak economic backdrop weighed on sentiment, with copper leading the metals lower. This was despite reports that China is considering further stimulus measures. Policymakers are weighing the issuance of at least CNY1tn of additional sovereign debt to spending on infrastructure.
Iron ore futures were also lower amid fears of production cuts from Chinese steel mills. Several mills are proposing additional maintenance programs amid weak demand following the Golden Week holiday. Higher coke prices are also keeping steelmaking costs at a high level. This could see the prospect of steel production cuts during winter.
Gold prices inched lower as profit taking emerged following haven-induced buying after the Hamas attack on Israel. This was despite dovish comments from the Fed that resulted in lower bond yields and a weaker USD.
Data source: Commodities Wrap