Oil gains amid signs of strong demand

Commodity markets rallied amid a broader risk-on tone across markets, aided by a weaker USD, which helped increase investor appetite.

Gold hit a fresh high after dovish commentary from Federal Reserve Chair, Jerome Powell. In prepared testimony to a House panel, Powell said it would be likely to be appropriate for the central bank to cut rates at some point this year. However, he made it clear we weren’t at that point yet. This case for a rate cut was strengthened by a weaker than expected private jobs report. Gold traded as high as USD2,149.25/oz during the session, dragging the rest of the precious metals sector higher. The recent rally has been underpinned by a strong surge in investor demand, as the spectre of lower rates has been joined by strong safe haven buying amid elevated geopolitical risks and an uncertain economic backdrop. In today’s 5in5 podcast, Bernard Hickey discusses this dynamic with Daniel Hynes.

Copper led the base metals amid the broader risk-on tone. Elevated interest rates and a stronger USD have been headwinds for the sector over the past year. However, a pullback in the USD this week has helped push copper close to a two-month high. Zinc hit a one-month high after a jump in orders to withdraw metal from LME warehouses. This was aided by reports that South Korea’s Young Poong Corp has cut refined zinc production at its Seokpo smelter by 20%. The reaction to China’s GDP growth target of 5% this year has been muted. To reach the target, the government will have to expand fiscal stimulus measures. However, the announcement lacked any detail over how that will occur.

Crude oil extended gains after a US report showed signs of rising fuel demand heading into the summer driving season. US gasoline inventories fell 4,460kbbl last week, according to EIA data. Demand for distillate fuel was also stronger, with inventories falling 4,131kbbl. Crude oil inventories gained 1,367kbbl, a smaller than expected rise. This came after Saudi Aramco raised its official selling prices for crude into Asia, suggesting demand is picking up in the region. Recent gains have been supported by OPEC+ supply cutbacks. Sentiment lifted following the announcement this week that the group will extend those cutbacks into the second quarter. Tensions in the Middle East continue to keep traders on edge. A Houthi missile struck a bulk carrier in the Gulf of Aden, killing crew members and causing it to be abandoned.

North Asia LNG prices edged higher as the cleaner burning fuel remains attractive against coal. The fall in LNG prices over the past four months has seen its premium against coal evaporate. Spot activity in the market has subsequently risen strongly as power utilities switch fuels. This was evident in Japan, where LNG stockpiles held by power generators are down nearly 10% w/w. European prices fell amid signs that household demand remains weak.