By Daniel Hynes
Sentiment remained well supported last week by renewed side issues amid a broader improvement in risk appetite across markets. This was aided by weaker USD.
Crude oil gained last week as evidence mounts of tightness in supplies. Saudi Arabia announced late last week that its voluntary 1mb/d reduction in output will now last into September, leaving output at 9mb/d. However, it comments that the cuts may be deepened caught the attention of the market. This was followed by Russia saying it will also extend its own production cut into next month. OPEC’s monitoring committee met on Friday and recommended it stay the course on its current production agreement. However, it noted members are willing to address market developments and take additional measure at any time. The tightness has seen key physical crude market indicators strengthen in recent weeks. Inventories are also falling, with US stockpiles recording their largest ever weekly drawdowns.
European gas jumped more than 12% last week as supply constraints offset concerns of weaker demand. Norway’s Troll field will be reduced further this week and later in August. However, increasing competition for LNG cargoes has also supported benchmark European prices. LNG imports into the continent have slumped as higher prices in Asia have dragged cargoes away. Even so, tepid demand in Asia has limited the upside in North Asia LNG prices. Itochu Cop warned that China’s consumption recovery has stagnated. This was compounded by increasing supply. Adnoc’s Das Island LNG plant in UAE resume output after recent maintenance.
Base metals were mixed amid uncertainty over the impact of China’s additional stimulus measures. The State Council released details of 20 measures to support consumption, including easing restrictions on car purchases and support people’s demand for buying their first homes. However, data showing ongoing weakness in manufacturing activity didn’t help sentiment. Consumer confidence will need to pick up quickly before the market has any confidence that demand will respond the government initiatives. This left copper slightly down on the week. However Aluminium and zinc managed to record gains last week amid signs of stronger demand in the US.
Support measures for the property sector failed to excite the iron ore market, with futures down 5% last week. However, Friday saw some tentative signs of recovery as lower steel and iron ore inventories in China saw futures recovery some of those losses.
A softer USD helped gold recover most of its losses from earlier in the week. Additional support was provided by more dovish comments from the Fed. Atlanta President Raphael Bostic said US employment gains were slowing and there is no need to hike rates further to ease inflation.
Data source: Commodities Wrap