Increasing expectations of a Fed rate cut kept market sentiment positive last week. Weakness in the USD supported investor appetite.
By Daniel Hynes
Market Commentary
Brent crude oil rallied lasts week on geopolitical tensions and falling inventories that kept market sentiment buoyant. US oil inventories fell by 12mbbl against expectations of 0.9mbbl. The decline of 2.2mbbl in gasoline stockpiles was also more than expected. This was driven by strong underlying demand. US road travel remains relatively strong and helped push implied gasoline demand on a four-week basis up for the first time this year. US air traffic hit a record high on 23 June. Tropical Strom Beryl is expected to regain hurricane status and threaten US oil output. Strong domestic demand in Saudi Arabia tightened supply, with exports falling to 5.61mb/d in June. OPEC+ production was 26.98mb/d in June, as a few members exceeded output quotas. Iraq produced 250kb/d above its quota in June.
European gas prices softened last week, as the prospect of strong cooling demand was outweighed by steady gas flows and ample inventories. Geopolitical supply risks have abated, as Ukrainian President Zelenskiy said the country is finding ways to supply gas to the European Union. North Asian LNG traded in a tight range despite renewed strength in power demand in Asia. Temperatures in China rose after recent rains, bolstering power demand. Australian power demand picked up on cold weather.
Copper prices headed towards USD10,000/t as market sentiment was buoyed by increasing expectations of monetary policy easing by the Fed. China’s improving macroeconomic outlook supported a view that copper demand is recovering in H2 2024. Bullish inventory withdrawals from the LME warehouse and retreating stocks at the SHFE. Nickel closed above USD17,000/t the week after the LME announced suspension of nickel deliveries from a Harjavalta plant in Finland owned by Norilsk from 3 October. This plant produces 65kt of refined nickel, one of the largest refining plants in Europe. Zinc prices got support from Chinese smelters’ production cut.
Iron ore rose to a monthly high of USD118/t on hopes of additional stimulus in China’s Third Plenum meeting. Measures deployed to support property markets have started showing impact. The slump in China’s home sales by the top 100 developers eased to -17% y/y against -33.4%y/y in May. Overall, home sales in June rose 36% from May. However, ongoing doubt on the sustainability of the recovery saw prices paring gains late in the week. Port inventories continued to build up to 149mt, signalling a weaker offtake from steel mills.
Gold gained nearly 3% last week after weaker US economic data raised prospects of a rate cut. The June non-manufacturing ISM showed services sector contracted at its fastest pace since COVID, while job data confirmed a build in disinflationary pressure. Among Asian central banks, India bought 9t in June, while China kept its buying on halt after 18 months of purchases.
Data source: Commodities Wrap