Oil rallies as supply issues persist
Daniel Hynes
Senior Commodity Strategist | helping investors and companies navigate macro, political, economic & environmental issues
Highlights
Concerns of a trade war weighed on sentiment. A stronger USD created headwinds. Oil rallied amid renewed supply side issues.
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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Market Commentary
Crude oil rallied amid renewed supply side issues. WTI crude rose after US President Donald Trump confirmed plans to impose tariffs on Canada and Mexico, two key suppliers of oil to the US, starting 4 March. The tariffs threaten to disrupt North America’s tightly integrated oil industry and raise demand for US crude to substitute any Canadian or Mexican oil which may be diverted elsewhere. The US imports approximately 4mb/d from Canada and 400kb/d from Mexico. Earlier in the day Trump also revoked Chevron’s oil licence to operate in Venezuela, citing electoral conditions and the country’s failure to take migrants from the US. Chevron is the only US major left in the country and was producing around 200kb/d. That had constituted around 20% of Venezuela’s total production. This comes as the Trump administration applies maximum pressure on Iran. The US Treasury Department put sanctions on over 30 individuals and tankers, as part of efforts to squeeze Iran’s oil revenues.
European natural gas prices rallied after traders viewed the recent selloff as overdone. Benchmark futures gained 8.7% after wiping out 16% in the previous six sessions. This comes despite the European Commission confirming that it will allow a more flexible approach to replenishing reserves this year. It plans to maintain its 1?November threshold of 90% but may tell governments it will be more tolerant about interim goals. Still there are concerns that tight supply could cause more price spikes, especially during summer, when most stockpiling efforts usually take place. Support was also found from stronger North Asian LNG prices. Colder weather in Asia, leading to gas stock depletion could see stronger competition for available LNG cargoes. Asian buyers from India and Thailand were particularly active.
Base metals endured a mixed session as the uncertain economic backdrop weighed on sentiment. Trump’s confirmation of tariffs beginning next week on Canada and Mexico raised concerns of a broader trade war and a negative impact on global economic growth. Nickel managed to buck the trend and end the session higher amid signs of stronger demand. More than 8kt of nickel was ordered out of LME warehouses on Thursday, driven by requests for the metal in Asia. This could be a sign that demand is starting to catch up with supply. Last week Indonesian nickel producer, PT Gunbuster Nickel Industry announced it was slashing production at the country’s biggest nickel smelter. It warned that it would be delaying payments to local suppliers and was unable to secure nickel ore. This follows a 50% fall in nickel prices over the past two years.
Iron ore fell amid weak sentiment. Speculation is mounting that China may reduce steel production by 50mt this year, as officials look to tackle mounting overcapacity in the industry. This would ultimately weigh on iron ore demand. Concerns are also rising around the impact of Trump’s wide-ranging tariffs threats. A 25% tariff on US imports of steel have already been announced.
Gold dropped as the USD pushed higher after Trump said tariffs on Canada and Mexico would go ahead next week. There had been speculation that they would again be delayed, raising the suspicion that they are being used as negotiation tactics.
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Chart of the Day
Trump’s confirmation that tariffs on Canada and Mexico will go ahead next week as planned renews concerns of supply disruptions in the oil market. The US imports nearly 4mb/d from Canada alone. Refineries in the US Mid West could struggle to find alternatives if Canadian exporters decide to send their oil elsewhere.?
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Business Head at confidential
18 小时前Why you r not responding