Oil falls as geopolitical risks ease
Daniel Hynes
Senior Commodity Strategist | helping investors and companies navigate macro, political, economic & environmental issues
Highlights
Easing geopolitical risks weighed on the energy markets. The threat of US tariffs continues to hang over the metal markets. Gold was steady despite a stronger USD.
?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
- EIA weekly report on US natural gas inventories
- IEA’s monthly oil market report
- Earnings/production reports: South32, Hindalco, Thyssenkrupp, Agnico Eagle.
- Indian Prime Minister Narendra Modi to meet President Donald Trump at White House
- Central bank speakers: Nagel (ECB).
- Economic data: Argentina CPI; Eurozone industrial production; Germany CPI; Israel trade; Japan PPI; Peru rate decision; Philippines rate decision; Turkey current account; UK industrial production, GDP; US initial jobless claims, PPI.
- Listen to today's 5in5 with ANZ podcast for more on the global economy and markets
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Market Commentary
Crude oil prices slumped following reports that Russia and the US were in talks to end the war in Ukraine. US President Donald Trump called Russian President Vladimir Putin, sparking optimism that risks to crude oil supplies would ease. The leaders agreed to begin talks to end the war. Signs of tightening supplies have been pushing up oil prices in recent weeks. US sanctions on Russian oil companies and vessels are said to have exacerbated the situation. Russia’s oil output has subsequently fallen to 8.962mb/d, 16kb/d below its approved levels under the OPEC+ production agreement. Sentiment wasn’t helped by a broader risk-off tone across market, following higher than expected inflation numbers. Earlier in the session, the oil market shrugged off signs of weakening demand. Nationwide stockpiles rose by 9nbbls last week, according to the American Petroleum Institute.
European gas prices fell after reports of talks about a possible relaxation of storage targets. A group of nations is pushing the European Commission to allow more flexibility on refilling requirements. The EC currently requires inventories to be 90% full by 1 November. However, strong demand during the heating season due to colder than normal temperatures has seen inventories fall lower than normal. This comes amid a broader tightness across the international LNG market. LNG stockpiles held by Japanese utilities fell to 2.15mt on 9 Feb. This was down 10.8% w/w. This also pushed stockpiles below the five-year average of 2.18mt for the end of February. Sentiment was also buoyed by a report by the EIA that said India’s LNG purchases are set to more than double over the next five years, reaching an annual 64bcm.
Gold was little changed as the market contemplated the outlook for interest rates. Earlier this week Fed Chair Jerome Powell told a Congressional hearing that the US central bank doesn’t need to rush to adjust interest rates. The cautiousness was exacerbated by data that should that inflation picked up stronger than expected at the start of the year. Nevertheless, the market remains gripped by concerns of tightness in the US physical market as Trump continues to threaten using more tariffs. Signs are emerging of this spread to Asia. South Korea’s gold mint has temporarily suspended sales of gold bars after it warned that its facing problems sourcing supply and managing demand.
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Iron ore prices rose sharply after a tropical cyclone disrupted Australia’s biggest bulk commodity port. Cyclone Zelia is expected to strengthen as it moves toward Western Australia’s Pilbara coast. It’s forecast to hit near Port Hedland, used by BHP and Fortescue. Port authorities said they will close operations today.
Copper managed to push higher as amid concerns that the metal will get caught up in the tariff war. Following Trump’s announcement of 25% tariffs on aluminium and steel, many traders believe copper is also in his sights. Signs of tightness also boosted sentiment. China has tightened requirements around building new copper smelters. Companies must control enough mine supply to feed the plants, according to a development plan issued by 11 ministries. Only a handful of projects are expected to meet this requirement.?
Chart of the Day
The copper/gold ratio is seen as a guide to economic uncertainty. And at the moment it sending a strong signal. It has sunk sharply since the start of the year and it now near levels only seen during the financial crisis and COVID-19. ?
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