Crude oil edges higher amid ongoing supply shortages

A lack of clear drivers saw commodities drift aimlessly in last night’s session. Easing inflation concerns saw created some support, however a slightly stronger USD weighed on investor appetite. The ANZ China Commodity Index ended the session down 0.2%. The industrial metals sector led the losses, with copper and aluminium falling sharply. The bulk commodities sector was driven down by falls in iron ore and coking coal. Gold benefited from the lower inflation numbers, but the rest of the precious metals sector failed to follow it up. Crude oil was little change, while LNG managed a small gain. Agriculture rose, with goods gains across grains and softs.

Gold gained as US inflation data came in lower than expected. The rise in August’s CPI of 0.3% from July was the smallest advance in seven months. This eased concerns that the Fed would be forced to start tapering asset purchases. Treasuries rallied, with the 10y yield then falling 5bps to 1.25%. This provided some support to gold, with the spot price breaking above USD1,800/oz. Silver gained, but the platinum group metals failed to follow. Palladium closed at its lowest in 14 months, on concerns that the global shortage of computer chips has hurt demand for the metal in car manufacturing.

Profit taking saw most base metals end the session lower. After hitting USD3,000/t for the first time since 2008, aluminium fell as investors scaled back bullish bets. The metal has gained more than 40% this year as the economic recovery has boosted demand. However, the pressure on supply has not eased, as China looks to cut emissions and conserve energy. Power shortages are likely to remain an issues leading into the northern hemisphere winter. This is likely to see ongoing curbs on aluminium production. Copper also eased lower as supply disruptions eased. Workers at Codelco’s Adina mine agreed to end a three-week stoppage. This was followed by workers at BHP’s Cerro Colorado mine accepting a new wage offer.

The rally in crude oil faded as investors took time to assess the risks to supply in the US. Following on the heels of Hurricane Ida, Hurricane Nicholas hit the Gulf of Mexico yesterday. However, its impact on offshore output was relatively limited. Storm-related power outages briefly shut the country’s largest pipeline which sends oil from Houston to the Northeast. The market is also bracing the release in inventory from China’s strategic reserve. Beijing confirmed that it will make the first sale of crude, 7.38mbbl, on 24 September. Even so, global inventories are likely to see further drawdowns The IEA cut its supply forecast for 2021 by 150kb/d. It said global supply fell by 540kb/d in August and will be flat this month. This comes as it expects fuel demand to see a sharp rebound of 1.6mb/d next month, with continued growth until the end of the year.

North Asian LNG futures were dragged higher by further gains in European markets, as well as supply side issues in the US. Dutch TTF futures hit EUR23/MMBtu amid supply shortages. The relentless rally has forced European governments to place windfall taxes on utilities and cap consumer energy bills. The rally in European markets continues to support Asian markets. The JKM October contract rose 0.6% to USD18.935/MMBtu, while the November contract jumped 6.3% to USD24.665/MMBtu. Supply issues are back in focus. The blackouts caused by Hurricane Nicholas have crippled operations at the Freeport LNG export terminal.

Iron ore fell for a fifth day, as the prospect of further curbs on Chinese steel production weighs on sentiment. Authorities in Yunnan announced this week that steel mills will be forced to delay some September output to November and December.