Improving risk appetite pushes commodities higher
Daniel Hynes
Senior Commodity Strategist | helping investors and companies navigate macro, political, economic & environmental issues
Highlights
Futures recovered from a sharp selloff to end the week higher. Supply side issues remain a focus in energy markets, although soft demand limited gains in metals.
Prices and commentary accurate as of 07:00 Sydney/05:00 Singapore/17:00(-1d) New York/22:00(-1d) London.
?
Ahead Today
?
Market Commentary
Crude oil recorded its first weekly gain since early July as traders remain mindful of simmering tensions in the Middle East. Israel is on edge, as it prepares for a retaliatory attack from Iran following the assassination of Hamas and Hezbollah leaders. However, US, Qatar and Egypt are calling for a new round of cease fire talks to end the war in Gaza. Geopolitical risks remain elevated, with Ukraine’s incursions into Russia putting at risk energy supply in Europe. Other supply side issues also provided price support last week. Libya’s largest oil field, Sharara, has been closed, and the National Oil Company has declared force majeure at the field, which was producing about 270kb/d. Signs of weaker demand could weigh on sentiment this week. Some major US oil refiners are cutting back operations at their facilities this quarter. Marathon Petroleum plans to operate its 13 plants at an average of 90% capacity in Q3. This follows similar announcements from PBF Energy, Phillips 66 and Valero Energy. Together, these refiners account for 40% of US refining capacity.
European gas benchmark futures posted a double-digit gain last week on fear of disruptions to Russia gas. Incursions by Ukraine into Russia’s bordering Kursk region this week have put gas flows at risk. This follows reports of Ukrainian troops seizing a gas transit point near Sudzha, Russia. The station is part of the last pipeline link bringing Russia gas to Europe via Ukraine. North Asian LNG prices were also dragged higher amid the supply side issues. The prospect of strong buying from China boosted sentiment. Chinese buyers have taken a back seat this summer, leaning on cheaper long-term contracts to meet additional demand. However, continued strong cooling needs could see them move into the sport market.
领英推荐
Copper extended gains along with other base metals amid improved risk appetite across broader financial markets. This was helped by signs of resilience in the US labour market on Friday. The decline in US jobless claims helped alleviate fears about a recession that triggered a sharp selloff early in the week. The recent pullback could also be luring some purchasing from China, whose inventories have eased since early June, while the Yangshan copper premium has recovered to USD63/t after tumbling to negative territory levels in May.
Iron ore futures fell sharply during the week as strong supply and weak demand continues to dampen sentiment. The steel making raw material fell below USD100/t, as the construction sector showed few signs of improving. Surging supply also weighed on sentiment. Shipments from Australia reached 16.5mt in the week to 26 July, according to Bloomberg data. This is up from 15.6mt in the previous week. Futures rallied late in the week after China’s consumer prices rose more than expected.
Gold was steady as US data eased some concerns of a hard landing for the world’s biggest economy. The fall in US unemployment benefits boosted optimism that the Fed may be about to easing monetary policy at next month’s meeting while avoiding a recession.?
?
Chart of the Day
Longs have sharply reduced their positions in the copper market amid?the uncertain economic backdrop.