Oil gains amid rising geopolitical tensions
Daniel Hynes
Senior Commodity Strategist | helping investors and companies navigate macro, political, economic & environmental issues
Highlights
A weaker USD helped boost investor appetite across the commodity complex. Rising geopolitical tensions also supported energy prices.
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
Gold gained as a weaker USD boosted investor appetite. The yield on 10y Treasuries also fell, providing some support. This was triggered by dovish commentary from Fed speakers. Austan Goolsbee said he welcomes cooling inflation data and said it may be time to think about whether policy is putting too much pressure on the economy. This helped ease concerns after strong US data services activity bolstered the case for a more hawkish Fed last week. Palladium continued its strong run, rising more than 6%. The metal has been supported by investors covering short bets. Platinum was also stronger.
Copper prices were little changed as the market is torn between sluggish demand in China and ongoing supply side issues. Last week negotiations between China copper smelters and Chilean miners reflected the tightness in the concentrate market. Processing fees for the second half of the year look likely to fall dramatically as Chinese smelters compete for increasingly scarce sources of ore. However, concerns of weaker demand remain elevated. Chinese copper fabricators warned about customers becoming more frugal last week amid the downturn in the property sector. Economic data were also mixed. China’s engine room for economic growth, the property sector, remains weighed down by excessive debt levels and an historically high level of inventory. Coupled with a reluctance by consumers to buy, the industry remains a headwind for copper demand.
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Crude oil also found support from the weaker USD. The gains were aided by rising geopolitical tensions. Russia blamed the US for a Ukrainian missile strike on occupied Crimea and warned of unspecified consequences for the attack. Russia’s defence ministry said the missiles used were supplied from the US, and claimed they were programmed by US specialists. Separately, the European Union placed sanctions on more than two dozen vessels, including 17 that hauled oil for Moscow. Adding to this, the market remains on edge ahead of elections in Iran later this week. A more hard-line president could result in more direct confrontations with the US, Israel and Saudi Arabia. Tensions between Iran and the West have been heightened in recent weeks, with Tehran mobilising a network of proxy militias to target Israel. Yemen’s Houthi rebels ramped up hostilities recently, including the sinking of a bulk commodity carrier in the Red Sea.
The prospect of European sanctions on Russia also helped push global gas prices higher. The EU will start applying a ban on transhipments of Russia LNG in the bloc’s ports from 26 March 2025. However, the gains in European gas markets were muted by easing supply side issues. An outage at Norway’s Hammerfest LNG plant is set to end tomorrow. In Australia, Chevron Corp said it had resumed full production at the Wheatstone LNG plant. North Asia LNG prices remain well supported by signs of stronger demand. Japan is looking at all avenues to keep electricity supply high amid strong cooling demand. It’s recently been turning to coal; however, cheaper gas prices are raising the possibility of fuel switching.?
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Chart of the Day
No discernible increase in investors short positions in the copper market, with the fall in net longs driven by the liquidation of long positions.