Crude oil stumbles as supply fears ease

Easing supply concerns amid weakening economic growth expectations left sentiment bearish. Energy fell further, dragging the rest of the complex lower.

Crude oil prices continued their retracement since the start of Russia invasion of Ukraine, as fears of supply shock eased. Brent crude fell below USD100/bbl following reports that an Iran nuclear deal is in the offering. Russian Foreign Minister, Sergei Lavrov, said that current sanctions on his country won’t affect the deal. Moscow said it received written guarantees from the US that levies won’t affect cooperation with Tehran in the nuclear field, which sparked optimism that the agreement could be revived. Talks were suspended over the weekend following new demands from both sides. There were also reports of further talks between Venezuela and the US. UK Prime Minister, Boris Johnson, is travelling to UAE and Saudi Arabia in a push to raise oil output. The trip is part of an effort to wean Europe of Russian energy. Even so, OPEC pointed out in its monthly report that there is no shortage in the oil market. It did warn though that the Ukraine conflict threatens to intensify the surge in global inflation, hurting oil demand and investment. However, oil prices stabilised after Russian President, Vladimir Putin, cast doubt on the success of negotiations with Ukraine. Putin said that Ukraine was not showing a serious attitude toward finding a mutually acceptable solution.

European natural gas edged higher amid ongoing threats to Russian gas supply to the continent. European Commission President Ursula von der Leyen tweeted that the bloc and its partners “will keep up the pressure on the Kremlin until it stops the invasion of Ukraine”. So far, the European Union has been reluctant to ban Russia gas imports due to its huge reliance on this supply. Flows via the Nord Stream pipeline and Ukraine have remained stable, however, flows to Germany via smaller links did fall earlier today. The apparent breakdown in talks between Russia and Ukraine also didn’t help sentiment in the European gas market. North Asian LNG futures followed European prices higher, as trade flows start to adjust to the crisis. China resold at least three US LNG cargoes to Europe. This follows Europe’s plan to diversify away from Russian gas by importing more LNG.

European carbon emissions snapped a series of five daily gains overnight as investor demand fell. This comes amid weakness across the energy markets as fears of supply shortages ease. A daily auction cleared at a sharp discount, which also weighed on sentiment.

Base metals extended falls as investors become increasingly bearish about the impact of China's lockdowns on economic activity. Cities and regions across China have imposed curbs on movement amid a new outbreak of COVID-19. The measures have already impacted operations in the auto sector in Changchun, while Shanghai has halted construction work. The jump in COVID cases poses significant challenges for China’s growth target of 5.5%, with the lockdown likely to disrupt some supply chain activity over coming weeks. The European Union excluded aluminium, copper and nickel from its latest set of trade restrictions on Russia, easing concerns of supply disruptions. Investors are also scrutinising what will happen next for nickel. Trading is due to recommence today following the short covering squeeze that saw prices rise above USD100,000/t.

Gold fell for a third day as amid the broader rout in commodities. This comes ahead of the Federal Reserve meeting, where its widely expected they will raise rates. However, physical demand is surging in Russia are consumers look to protect their savings. The Bank of Russia was forced to halt gold purchases from banks to ensure there is enough supply for local buyers.