Energy rebounds as focus returns to supply side issues
Daniel Hynes
Senior Commodity Strategist | helping investors and companies navigate macro, political, economic & environmental issues
Highlights
Sentiment was boosted by a broader risk-on tone across markets. Supply-side issues continue to hang over energy markets.
Prices and commentary accurate as of 07:00 Sydney/05:00 Singapore/17:00(-1d) New York/22:00(-1d) London.
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Ahead Today
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Market Commentary
Crude oil was little changed as Russia tests the effectiveness of US sanctions. Bloomberg reported that Russia is sending oil on vessels that have been blacklisted by the US to India. Russia’s exports of oil products are set to hit an 11-month high of approximately 2.3mb/d, according to ship tracking data. This comes as supply disruptions in Libya ease. Oil loadings from two key ports in eastern Libya have resumed, the chairman of the nation’s state oil company announced. Signs of stronger supply were offset by a broader risk-on tone across markets. Crude oil was up more than 1.6% in early trade after tech stocks rebounded from yesterday’s rout. Focus for the oil market is quickly turning to OPEC’s supply policy. Saudi Energy Minister Prince Abdulaziz bin Salman met with counterparts from Iraq and Libya in Riyadh to discuss energy co-operation and stability of global markets, the state-run Saudi Press Agency reported. The OPEC+ alliance is due to hold an online meeting of its monitoring committee on 3 Feb to review supply curbs. A Bloomberg survey indicates the market expects OPEC to stick with its current policy, with supply curbs to continue this quarter before unwinding them from April.
European gas benchmark futures were under pressure in early trading following reports of renewed talks on the Ukraine transit agreement. President Volodymyr Zelensky said that his country is ready to transit fuel from Azerbaijan using critical infrastructure. Such a contract could be inked relatively quickly if an agreement is reached. However, without offering little details the market was left guessing about the impact of supply into Europe. In addition, the European Commission said that it would continue discussions with Ukraine on the supply to Europe through its network and that it was willing to include Hungary and Slovakia in the process. The losses were reversed amid the improved sentiment across the energy complex. North Asian LNG prices were largely unchanged, despite ongoing supply-side issues. Power supply to Freeport’s LNG export terminal remains interrupted, indicating supply remains constrained.
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Copper led the base metals sector lower after US President Donald Trump pledged import tariffs that raise the risk of raising costs for manufacturers while dampening global demand. Trump said he plans to put levies on copper, aluminium, and steel, as well as computer chips and pharmaceuticals, to boost US manufacturing. The move sent copper prices traded in New York higher, resulting in the spread between London and NY rising. This is likely to push higher amid ongoing threats of tariffs.
Gold rebounded from yesterday’s sell-off as investors sought safety from Trump’s latest tariff threat. It was reported that US Treasury Secretary Scott Bessent favoured starting with a global tariff rate of 2.5%. However, the US President said in a speech in Miami that he wants to impose across-the-board tariffs that are much bigger than 2.5%. This countered the impact of a stronger USD, which traditionally weakens investor demand. Traders are now looking ahead to the FOMC meeting, which concludes tonight. Policymakers are expected to leave rates unchanged, but the market will be interested in the Fed’s view on growth and inflation in light of Trump’s policies.
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Chart of the Day
A gap has emerged in the spread between copper prices traded on the Comex and LME. The recent threat of tariffs on copper has seen Comex prices trade at a premium of up to USD550/t over LME prices. This is likely to remain elevated while tariffs hang over the market.?
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