Oil slumps as bearish sentiment takes control
Daniel Hynes
Senior Commodity Strategist | helping investors and companies navigate macro, political, economic & environmental issues
Highlights
Energy markets fell amid heavy selling on concerns over demand. Metals were lower after trade data showed a moderation in demand in China.?
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
Crude oil prices collapsed amid renewed fears of weaker demand. Weak economic data in the US and China in recent weeks has raised concerns that demand will cause an oversupply in the market. Trade data released yesterday showed China’s appetite for the fuel is waning. Crude oil imports rebounded from July but remained weak on a seasonal basis, down 7% y/y to 49.1mt. Unattractive margins continue to keep the utilisation rates low at smaller Chinese refiners. Domestic consumption has also been impacted by rising use of electric vehicles. Speculative selling has magnified the depth of the selloff, with Brent crude now trading below USD70/bbl for the first time in more than two years. This comes despite OPEC agreeing to delay it production hikes by two months. It also sees demand holding up but trimmed its forecast for demand growth this year to 2.03mb/d from 2.11mb/d in its last monthly market report. Its forecast for 2025 was steady at around 1.74mb/d. It raised its forecast for global economic growth from 2.9% to 3.0%, noting strong consumer spending. It also noted that its total crude output fell by 197kb/d in August to 26.59mb/d. However, Iraq and Kazakhstan continue to produce above their quotas in the production agreement, which include compensation cuts from overproducing earlier in the year.
The selloff in the oil market spread to the natural gas market, with European gas futures plunging to their lowest level in six weeks. This was compounded by stronger renewable energy generation and weak fuel consumption. This helped shrug off concerns of supply risks. Pipeline gas flows from Europe’s top supplier, Norway, slowed for seasonal maintenance, with some work extended over the weekend. The market is also keeping an eye on Russian gas flows through Ukraine, amid tension in the region. North Asian LNG prices were steady as supply risk mount in that market. Power flows to the Freeports LNG export terminal dropped on Tuesday, indicating a potential production slowdown as the region prepares for the arrival of the Hurricane Francine. In Australia, the Ichthys LNG plant reduced its output to allow for preventative safety inspections. This comes amid strong demand in the region. Trade data showed China’s natural gas imports were up 8.3% y/y to 11.76mt in August, driven by strong demand from the transport sector.
领英推荐
Copper and aluminium gave up earlier gains as the focus returns to the demand outlook in China. Trade data showed China’s appetite for copper waned in August. Refined copper imports fell by 12.3% y/y, while concentrate imports were also lower. Overall total copper imports fell 16% y/y. Weak domestic consumption was also the likely driver of a sharp rise in aluminium exports in August. Sentiment has been battered by a deepening selloff in China’s stock markets. With Beijing showing no signs of introducing big-bang fiscal stimulus measures to arrest a slowdown in economic growth, the mood is likely to remain dour. Iron ore prices were steady, despite trade data showing iron ore imports into China fell 4.7% y/y as steel mills battled weak margins and high inventories.?
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Chart of the Day
Bond markets pricing in over 250bps of cuts by the Fed, reminiscent of a hard economic landing. This appears to be driving sentiment in the commodity sector, with the Bloomberg Commodity Index showing a similar path.
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