Crude oil rallies amid falling inventories and rising traffic levels

Commodity markets rallied, as optimism on the medium term outlook for sector continues to improve. The ANZ Commodity Index ended the session up 1.3%, with most sectors ending higher. Agriculture led the complex higher, with hogs and soybeans rising strongly. Industrial metals were also stronger, led by gains in copper and aluminium. Crude oil prices rallied, dragging the energy sector higher despite lower LNG prices. Bulk commodities were relatively unchanged, with iron ore holding onto recent gains. Gold fell slightly, while silver and platinum gained.

Crude oil hit a one-month high as falling inventories and forecasts of stronger demand boosted sentiment. Stockpiles of US crude oil fell 5,890kbbl last week, and are now at their lowest level since February, according to the Energy Information Administration. More encouraging, gasoline demand rose for the seventh straight month, with the EIA report showing that the four week rolling average of US gasoline supplied is closing in on 9mb/d. This comes as New York City toll traffic is set for its busiest April in seven years. Demand is so strong that the EIA is predicting that US pump prices will be more than 30% higher than last year at USD2.78/gallon. Sentiment was also boosted after the IEA joined over agency in raising its forecasts for demand. It now expects growth in oil consumption to reach 5.7mn/d, up 230kb/d form its previous estimate. Driven by strong demand in the US and China, the world is on track to recover about two-thirds of the demand lost last year. Rising prices compelled US shale producer Pioneer Resources to warn of another price war if they resume breakneck production growth. CEO Scott Sheffield blamed the initial oil market crash on shale, not the pandemic.

North Asia LNG prices were steady as a plethora of tenders hit the market following recent strong interest from buyers in Asia. In particular, Chinese importers have been keen to buy spot cargo amid efforts to fill underground storage facilities. LNG demand may be boosted following the Nuclear Regulation Authority’s ban on Tepco from restarting its Kashiwazki Kariwa nuclear power plant. This saw JKM May futures unchanged at USD7.015/mmbtu. Longer dated futures managed to eke out a small gain, with the June contract up 1% to USD7.675/mmbtu.

Copper rallied, pushing back above USD9,000/t amid the improving macro backdrop. The market’s concern over the potential tightening of credit in China has subsided, boosted by data that continues to point to strong demand. Earlier this week trade data showed not only strong domestic demand, by strong exports as the recovery in developed economies accelerates. Imports of raw materials have also strong. Refined copper imports in march rose 25% y/y, with monthly imports hitting a four-month high of 552,000 tonnes. Calls that copper is becoming a national security issue are also heightening interest. Mining magnate Robert Friedland says it will become central from what the US wants to do with its economy.

Iron ore futures inched lower, as traders assessed the recent rally against strong exports from major suppliers and elevated stockpiles. In Brazil, daily average exports were 1.32mt in the first six business days of April, up from 1.34mt in March. Flows from Australia’s Port Hedland rose to a nine-month high in March. Nevertheless, high steel mill margins and strong demand in China should limit any sell-off in the short term.

Gold continues to struggled to hold onto any upward momentum, with prices coming under pressure amid higher bond yields. This follows comments from Powell that the US economy appears poised for stronger growth. Investor demand may also be waning amid the continued rally in cryptocurrencies. Bitcoin breached USD64,000 for the first time. Holdings of gold in ETFs continues to fall, with net sales reaching 7.36moz this year.