Expectations of stronger demand in China pushed crude oil higher

Signs of improving demand boosted sentiment across commodity markets. This was aided by a reversal in the USD late in the session amid expectations of lower inflation in 2023.

Crude oil gained as Saudi Aramco’s move to raise prices boosted sentiment. The world’s largest producers increased most prices for its flagship Arab Light grade against expectations of a cut. It signalled the producer is expecting stronger demand, particularly in China which is reopening after years of virus-related restrictions. Rhetoric from OPEC has also been bullish this week. OPEC secretary-general Haitham al-Ghais said he was upbeat on China. Kuwait said that consumption in the world’s biggest crude importer was already on the rise. The market shrugged off reports that flows through the 1mb/d Ceyhan oil terminal in Turkey will resume shortly. More broadly, supply side issues were also back in focus. The Energy Information Administration lowered its forecast for US crude oil production in 2024.

European natural gas fell amid a broader weakening of sentiment. Weather forecasts pointing to an end of the current cold spell sparked the more bearish mood of the market. Dutch front month futures ended the session down nearly 6% to EUR54.66/MWh. The market is keeping a close eye on the reopening of the Freeport LNG plant, which was a key supplier to the European market before it was shut down due to a fire last summer. This could help the continent refill storage facilities once the heating season is over. Losses in the Europe also weighed on North Asian LNG market, with the Japan-Korea Market failing 1.7% to USD18.19/MMBtu. Amid increasing volatility, traders were more focused on seeking long-term supplies. Petronet LNG, India’s largest importer, wants to secure 12mt/y of additional supply under long term contracts.

Copper gained amid the better tone across commodity markets. This was aided by signs of ongoing supply constraints. Chile, the biggest copper-producing nation, reported a sharp fall in export revenue. Copper shipments totalled USD2.98bn in January, down 30% from December and 22% below January last year. This was against a copper price that was on average 8% m/m higher last month. Chile has been beset by a series of setbacks at mines, as well as declining ore quality and water restrictions.?This comes as social unrest in Peru threatens to disrupt supply. MMG Ltd halted operations last week due to road blockades that have prevented supplies reaching its site. Aluminium prices edged lower following news that the US is planning to slap a 200% tariff on Russian aluminium. It’s unlikely to have a big impact on the US given the limited volumes it now imports. Any disruption is likely to see more raw materials find their way to Asia, where spare processing capacity is available.

Gold ended the session largely unchanged amid a USD which was mixed against other currencies. Buying by central banks remains buoyant, with China raising its gold reserves for a third straight month