Commodities Feed

The Commodities Feed: Copper spread tightens on inventory withdrawals Oil prices are trading under pressure this morning on demand side uncertainties as Saudi Arabia increased the official selling price for July deliveries for all regions. LME copper continues to see inventory withdrawals as demand in Asia picks up.   Energy – Saudi increases the official selling price for oil Saudi Arabia increased its official selling price for all regions for July, a day after the nation pledged an additional oil supply cut for the same month. Saudi Aramco will sell the Arab Light crude for buyers in Asia at a US$3/bbl premium for July deliveries, an increase of US¢45/bbl compared to June 2023.The premium for the US and European deliveries has increased by US¢90/bbl, while buyers in the Mediterranean region will see an increase of US¢60/bbl. The hike in premium comes as a surprise considering ongoing demand concerns and that Saudi Arabia has been pushing for supply cuts to bring the oil market into balance.   Metals – Declining copper on-warrant stocks tighten LME spread Recent LME data shows that total on-warrant stocks for copper dropped by 17,750 tonnes – the biggest daily decline since October 2021 – for a second consecutive session to 71,575 tonnes (the lowest level in almost a month) as of yesterday. The majority of the outflows were reported from South Korea’s Busan warehouses. Meanwhile, cancelled warrants for copper rose by 18,025 tonnes after declining for three consecutive sessions to 27,375 tonnes yesterday, signalling potential further outflows. The cash/3m for copper stood at a contango of just US$4/t as of yesterday – compared to YTD highs of a contango of US$66.26/t from 23 May – indicating supply tightness in the physical market.   In mine supply, Peru’s latest official numbers show that copper output in the country rose 30.5% year-on-year (+1.2% month-on-month) to 222kt in April. The majority of the annual production gains came from the higher output levels from mines like Southern Peru Copper, the Las Bambas and Cerro. Cumulatively, copper production grew 15.7% YoY to 837.5kt in the first four months of the year. Among other metals, zinc production in the nation increased 31.4% YoY to 130.6kt in April.   In ferrous metals, the most active contract of iron ore trading at the Singapore Exchange extended its upward rally for a fifth consecutive session and traded above US$108/t this morning on speculations of more supportive steps from China to accelerate its economic growth. The recent market reports suggest that the People’s Bank of China is likely to cut the reserve-requirement ratio for banks and might also lower interest rates in the second half of the year. Meanwhile, BBG also reported that the Chinese government is preparing a new batch of measures to push growth in the property market.     Agriculture – US crop planting maintains the pace The USDA’s latest crop progress report shows that US corn plantings continue to rise with 96% of plantings completed as on 4 June, compared to 93% of planting done at this point in the season last year and the 5-year average of 91%. Similarly, soybean plantings are also growing, with 91% planted as of 4 June – well above the 76% seen at the same stage last year and the 5-year average of 76%. Meanwhile, spring wheat plantings are 93% complete. This is above the 81% planted at the same stage last season and in line with the 5-year average. Meanwhile, the agency rated around 36% of the winter wheat crop in good-to-excellent condition, up from 34% a week ago and 30% seen last year.   The USDA’s weekly export inspection data for the week ending 1 June indicated a drop in demand for US grains over last week. The agency stated that US corn export inspections stood at 1,181kt, lower from 1,346.4kt in the previous week and 1,458.5kt reported a year ago. For wheat, export inspections stood at 291.6kt, down from 391.3kt from the previous week and 355.3kt reported a year ago. Similarly, soybean export inspections fell to 214.2kt, compared to 243.1kt from a week ago and 370kt from a year ago.   The director general of the Ivory Coast's cocoa regulator, Conseil Café Cacao, stated that the domestic cocoa crop is expected to improve in 2022-23 (compared to the previous year) despite intensifying concerns about a potential outbreak of the swollen shoot virus. Ivory Coast cocoa production is stabilizing despite a slow start, taking the season's harvest projections between 2mt-2.2mt. Last week, the International Cocoa Organization (ICCO) projected an increase of 4% in Ivory Coast's cocoa output this season, reaching 2.20mt.

The Commodities Feed: Gold demand remains firm from central banks China increased its official gold reserves by 0.5mOz in May 2023 taking total gold purchases to 2.6mOz for the current year so far.   Energy: crude oil inventory drawdown in the US The weekly report from the Energy Information Administration (EIA) shows that commercial crude oil inventories in the US dropped by 0.5MMbbls over the week to 459.2MMbbls mainly on account of higher refinery runs. The market was anticipating a build-up of 0.35MMbbls. Refinery operating rates in the US increased further over the week to 95.8% (the highest level since 2019) of their capacity, up from 93.1% a week earlier.   Higher refinery runs have helped increase the refined products supplied in the domestic market with both gasoline and distillate inventories increasing at an accelerated pace. Gasoline inventories increased by 2.7MMbbls over the last week, against market expectations of 0.4MMbbls while distillate stockpiles rose by 5.1MMbbls last week, compared with expectations for a build of 0.9MMbbls.   Crude oil imports fell by 817Mbbls/d over the week to 6.4MMbbls/d for the week ending 2 June. On the other hand, crude oil exports dropped by nearly half to just 2.5MMbbls/d for the week due to higher demand in the domestic market as well as higher competition in the overseas market. On the supply side, the EIA reported that crude oil production in the US rose by 0.2MMbbls/d to 12.4MMbbls/d in the week ending 2 June, after remaining range-bound for the last seven months. This is the highest production level since the early weeks of April 2020. The increase comes even as the number of rigs targeting oil continues to fall.   The latest data from the Petroleum Planning & Analysis Cell in India shows that petroleum products demand in the country increased 9% year-on-year to 20mt in May 2023. ear-to-date demand for petroleum products is up 5% YoY to 96.2mt over the first five months of 2023. Crude oil demand from Asia has been recovering over the last few months as the pace of interest rate hikes slows down and economic growth picks up. Earlier, China also reported firm oil demand in May 2023 which also helped sentiment.    

The Commodities Feed: US crude oil inventory increases sharply It was a mixed set of data for the oil market yesterday. The IEA report was fairly neutral with both supply and demand growth estimates increasing by 0.2MMbbls/d. The weekly report from the EIA was soft as US crude oil inventory increased by a huge 7.9MMbbls for the week.   Energy – The IEA revises higher both supply and demand growth estimates The International Energy Agency (IEA) released its latest monthly oil market report yesterday and its longer-term forecasts. The agency revised higher its demand growth estimates by 0.2MMbbls/d for 2023 and now expects global crude oil demand to increase by 2.4MMbbls/d to 102.3MMbbls/d. The agency estimates demand growth to slow down to 0.9MMbbls/d in 2024 as the switch to cleaner energy accelerates and overall energy demand stabilises. On the supply side, the IEA revised higher global supply estimates by around 0.2MMbbls/d for 2023 with global oil supply estimated to increase by 1.4MMbbls/d to 101.3MMbbls/d for the year. Most of the production growth comes from non-OPEC countries led by the US and Latin America. Global oil supply growth is expected to slow down to 1MMbbls/d in 2024.   For the longer term, the IEA estimates global demand growth to slow down significantly to less than 0.5% per year by 2027/28 as electric vehicles replace the demand for gasoline and distillates. By 2027/28, the IEA estimates oil demand growth to come only from LPG, ethane, or naphtha products (where substitution is limited) while demand for gasoline and diesel could fall. The IEA expects global major oil producers to maintain plans to build further capacity which will help keep the market well supplied in the longer term.   The weekly report from the Energy Information Administration (EIA) shows that US commercial crude oil inventories in the US jumped by 7.9MMbbls over the week to 467.1MMbbls. The market was anticipating a drawdown of 1.11MMbbls whilst the API reported a build of around 1MMbbls for the week. When factoring in the Strategic Petroleum Reserve (SPR) releases, total US crude oil inventories increased by around 6MMbbls as the SPR stocks fell by 1.9MMbbls for the second straight week.   Meanwhile, oil inventories at Cushing, Oklahoma rose by 1.6MMbbls to 42.1MMbbls, the highest level since 2021. EIA said that US crude oil production was unchanged at 12.4MMbbls/d last week. As for refined product inventories, gasoline inventories rose by 2.1MMbbls, against a forecast for a build of 1MMbbls. Meanwhile, distillate stockpiles rose by 2.1MMbbls last week, quite in line with expectations for a build of 2MMbbls.    

The Commodities Feed: Strong Russian oil flows to China Oil prices remain rangebound, with demand concerns continuing to put a cap on the market. European gas prices saw further strength yesterday, despite fundamentals still looking comfortable.   Energy - China imports record volume of Russian crude The oil market continues to trade in a fairly rangebound manner. OPEC+ action from several weeks ago has done little to propel prices higher and demand concerns continue to put a cap on the market.  In recent weeks there has been increasing concern over China’s demand outlook, despite Chinese oil demand indicators looking fairly good up until now. China’s National Petroleum Corporation (CNPC) now expects domestic oil demand to grow by 3.5% YoY in 2023, this is lower than the 5.1% growth that was forecast back in March. China’s demand outlook is crucial for the global market, given that the bulk of global demand growth this year is expected to be driven by China. Significantly weaker Chinese demand would also mean that the global oil balance would not be as tight as currently expected over the second half of 2023. Russian seaborne crude oil exports edged lower over the last week although, at more than 3.5MMbbls, exports are still above pre-war levels. As widely known, China and India continue to pick up large volumes of Russian oil. The latest trade data from China shows that Chinese crude oil imports from Russia in May hit a record high of 2.3MMbbls/d, up 32% MoM and 15% higher YoY. The volatility seen in the European gas market last week has spilled over into this week with TTF rallying almost 11% yesterday. Warmer weather and recent Norwegian outages have propelled prices higher. Recent price action shows that the market remains extremely sensitive to supply/demand developments. However, European gas storage is very comfortable at around 74% full at the moment, and we suspect storage will basically be full well ahead of the start of the next heating season. Assuming no supply shocks, this suggests we should see downside in natural gas prices over the summer months. As for the calendar today, it is fairly quiet when it comes to energy markets. The API will be releasing weekly US inventory data later in the day. This will be followed by the EIA's weekly report on Thursday. Both of these releases are delayed by a day due to a US holiday earlier in the week.

The Commodities Feed: Stronger middle distillates Oil prices strengthened on the back of stronger buying in the physical market. However, a more hawkish tone from the US Federal Reserve will likely provide some resistance to the market.   Energy: Middle distillate strength The oil market strengthened yesterday with ICE Brent settling a little more than 1.6% higher on the day. Stronger buying from Asian refiners more recently has been supportive, whilst Chinese monetary easing earlier in the week has also been helpful. The move has seen Brent trade back above the 50-day moving average. However, hawkish comments from the US Fed chairman overnight suggest that oil might struggle to hold onto this momentum in the immediate term. API numbers released overnight show that US crude oil inventories fell by 1.2MMbbls over the last week, whilst the market was expecting a small build of around 450Mbbls. Meanwhile, gasoline inventories increased by 2.9MMbbls, whilst distillate stocks fell by 301Mbbls. The more widely followed EIA numbers will be released later today.   Middle distillates continue to enjoy some strength with the prompt ICE gasoil crack trading above US$20/bbl, whilst the prompt ICE gasoil timespread has also traded into deeper backwardation, almost hitting US$20/t earlier this week. Gasoil inventories in the ARA region continue to trend lower (after the strong build late last year/earlier this year), which has seen levels fall below the five-year average for this time of year. Refinery maintenance in the Mediterranean and some unplanned outages in Europe recently have provided some support to middle distillates. This support may persist in the short term, however, the eventual return of disrupted capacity and the ramping up of new capacity in the Middle East should help ease this short-term tightness.

The Commodities Feed: Positive US macro data increases likelihood of further rate hikes Oil prices came under pressure yesterday despite better-than-expected macro data from the US. The oil market instead is focused on the implications of this stronger data - the potential for further rate hikes.   Energy - Brent-Dubai spread flip The oil market sold off quite aggressively yesterday following a raft of stronger-than-expected data from the US with durable goods orders surprisingly climbing in May. New home purchases also came in much better than expected, whilst consumer confidence rose to its highest level since early 2022. This strong set of data once again suggests that the Fed will likely have to hike rates further, which is obviously aligned with Jerome Powell’s testimony last week. Equity markets took the data as a positive sign. However, the oil market did not. ICE Brent settled almost 2.6% lower yesterday.   Overnight the API released weekly US inventory numbers which showed that US crude oil inventories fell by 2.41MMbbls over the last week, which is more than the roughly 1.5MMbbls decline the market was expecting. As for refined products, gasoline inventories fell by 2.85MMbbls, while distillate fuel oil stocks increased by 780Mbbls. The more widely followed EIA report will be released later today.   The Brent-Dubai spread has continued to see significant weakness over the last month  - a trend that has been at play since late last year. However, the spread now sees Brent trading at a discount to Dubai. This is fairly unusual, as the Dubai benchmark reflects a lower quality of crude oil relative to Brent. OPEC+ supply cuts have played an important role in the narrowing of the spread, while the expectation that Saudi Arabia may extend its additional voluntary cut of 1MMbbls/d beyond July will also be contributing to the relative strength in Dubai. However, the move in the spread should see Asian buyers looking to the Atlantic Basin for cheaper barrels.    

The Commodities Feed: Further US SPR purchases The oil market had a strong end to the week following the extension of Saudi voluntary cuts earlier in the week. For this week, markets will be focused on US CPI data on Wednesday, whilst specifically for the oil market, we have the IEA and OPEC oil market reports released later in the week.   The oil market managed to pull off a second consecutive week of gains with ICE Brent settling almost 4.8% higher last week. Cuts from both Saudi Arabia and Russia have provided some support, although the market will have to continue to contend with macro uncertainty, which has capped the market over the last couple of months. The recent action taken by Saudi Arabia will likely provide some comfort to longs as it sends the signal that the Saudis are committed to putting a floor under the market. The latest positioning data shows that speculators increased their net long in ICE Brent by 25,106 lots over the last reporting week to 184,906 lots as of last Tuesday. This move was predominantly driven by fresh longs entering the market, with the gross long increasing by 16,881 lots. Meanwhile, for NYMEX WTI, speculators increased their net long by 23,820 lots to 95,363 lots. This was driven almost exclusively by short covering. At 112,155 lots, the gross short in WTI is still sizeable and so with the right catalyst, there is the potential for a short-covering rally. Another factor which is providing some degree of support to the market is the refilling of the US Strategic Petroleum Reserve (SPR). On Friday the Department of Energy (DoE) announced that it will be looking to purchase around 6MMbbls of US sour crude oil for delivery in October/November.  Up until now, the DoE has successfully tendered for 6.3MMbbls, with this volume set to be delivered in August and September. There had been reports that the DoE was looking to buy roughly 12MMbbls this year, and if we see the total volume awarded in the latest announcement, that would get us to this 12MMbbls already. A large explosion at a Mexican platform, which was sadly deadly, saw Pemex reduce oil output by 700Mbbls/d. However, the bulk of these shut-ins appears to have been precautionary and 600Mbbls/d of this output has already returned, according to the company. Drilling activity in the US continues its decline with the latest data from Baker Hughes showing that the number of active US oil rigs fell by five over the week to 540. This is the lowest number since early April 2022. The number of active oil rigs in the US has fallen by 81 since the start of the year. Lower drilling activity suggests more limited supply growth. And this is a trend that we have seen in the EIA’s US crude oil supply forecasts with less than 200Mbbls/d of US supply growth expected in 2024. The EIA will release its latest Short-Term Energy Outlook on Tuesday, which will include US production forecasts for the remainder of 2023 and 2024. In addition to the EIA’s Short-Term Energy Outlook release on Tuesday, both OPEC and the IEA will release their latest monthly oil market reports on Thursday. Given the macro uncertainty, the market will likely be focused on any changes to demand forecasts in both reports. Away from energy markets, the big macro release this week will be US CPI numbers on Wednesday, which will likely further shape market expectations on how much more monetary tightening we could see from the US Federal Reserve in the months ahead.

The Commodities Feed: China’s GDP falls short The complex has come under pressure this morning following China’s second quarter GDP data, which came in below market expectations. The data will do little to ease concerns over the Chinese economy.   Energy – China data weighs on oil Oil’s venture above US$80/bbl was relatively short-lived, with Brent settling below this level at the end of last week. Downward pressure has continued during early morning trading today following weaker than expected Chinese GDP data. A slight recovery in the USD has also put some pressure on oil whilst supply concerns have also eased, with both the Sharara and El Feel oil fields in Libya reportedly resuming after a brief shutdown last week due to protests. However, it appears as though loadings at Shell’s Forcados oil terminal in Nigeria remain halted after a possible leak was discovered last week. The terminal was set to ship 220Mbbls/d in July. This follows a number of other recent supply disruptions in the oil market, including Kazakh output being affected by power issues and Mexican output bieing hit by a platform explosion, whilst the market is still awaiting the resumption of Kurdish oil flows via the Ceyhan terminal in Turkey. Speculators increased their net long in ICE Brent over the last reporting week, buying 48,123 lots to leave them with a net long of 233,029 lots as of last Tuesday. This is the largest net long speculators have held since April. However, the current speculative long is likely to be somewhat larger, given that this data will not include the post-US CPI rally. The Commitment of Traders report also shows that producers appear to have taken advantage of the more recent strength by selling into the rally, with the producer gross short increasing by 34,930 lots over the last reporting week. The latest rig count data from Baker Hughes shows that the number of active US oil rigs continues to trend lower. The oil rig count fell by 3 over the last week to 537, which is the fifth consecutive week of declines. The number of active rigs has fallen from a year-to-date peak of 623 in mid-January. Whilst up over the last week, Primary Vision’s frac spread count does suggest that completion activity in the US has plateaued over the last few months. China released its second quarter GDP numbers this morning, which showed that GDP grew 6.3% year-on-year, falling short of market estimates of 7.1%. Even so, quarter-on-quarter GDP numbers came in line with consensus at 0.8%. June industrial production came in above expectations at 4.4% YoY, whilst retail sales in June slowed to 3.1% YoY from 12.7% previously, which was also below expectations of 3.3%. The weaker than expected GDP numbers are likely to continue to cause concern for markets. Digging a little deeper into industrial output numbers shows that apparent domestic oil demand was strong over June, coming in at 14.86MMbbls/d, up 13.6% YoY and 1.4% MoM. However, the oil market clearly seems focused on weak headline numbers.

The Commodities Feed: Supply risks grow Russia’s bombing of port infrastructure along the Danube river in Ukraine has pushed grain prices significantly higher. This escalation risks spilling over into other parts of the commodities complex, particularly energy.   Energy – Oil marches higher Having struggled to break convincingly above US$80/bbl over the last week or so, Brent settled above US$82/bbl yesterday and in doing so broke above the 200-day moving average. The market would have taken comfort from China’s Politburo meeting where the government said it would provide further support to the property sector, stimulate consumption and tackle local government debt. China is key for global oil demand growth this year and the market has been getting increasingly concerned over the weaker-than-expected economic recovery, so any support measures will be helpful in easing some of these concerns. On the supply side, whilst remote for now, risks are growing following Russia’s escalation and bombing of Ukrainian port infrastructure along the Danube River. Whilst this is not a direct threat to energy markets, there are worries that this could spill over into other markets, particularly after Ukraine last week said that any ships heading to Russian Black Sea ports could be treated as potential military targets (in response to a similar statement from Russia). Russia ships almost 500Mbbls/d from the Black Sea port of Novorossiysk, while the CPC terminal in the port exports around 1.2MMbbls/d of Kazakh oil. Therefore, it is not too surprising that the market is starting to become a little nervous over a potential supply disruption, even if it is a remote risk for now.   In addition, stronger refinery margins are likely adding to some optimism over demand, although the strength in refinery margins appears to be more supply-driven than demand-driven at the moment. The strength has been driven predominantly by gasoline and middle distillate cracks, while fuel oil cracks are also holding relatively firm. European gasoline cracks have hit US$30/bbl, the highest levels since July last year. The strength in the gasoline market has been blamed on several factors, including tightness in the octane market, while hot weather in parts of Europe also appears to have led to some refinery disruptions. The initial strength in margins was driven by middle distillates, which would have led to some yield switching (gasoline to gasoil), however the more recent relative strength in gasoline could now see yields switching back (gasoil to gasoline). As a result, this is also offering continued support to middle distillate cracks. In addition, in the US, an unplanned outage at Exxon’s 540Mbbls/d Baton Rouge refinery, the fifth largest refinery in the US, is also providing some strength to margins. European natural gas prices also rallied significantly yesterday with TTF settling 8.5% higher on the day, taking it back above EUR30/MWh. There will be concerns over what further escalation in Ukraine could mean for the small but still important amount of Russian pipeline gas that runs through Ukraine into the EU. Fundamentally though, the European market remains in a very comfortable position with storge almost 84% full. While uncertainty may provide support to prices in the near term, we expect prices to come under pressure over much of the third quarter, given storage will be full well ahead of the next heating season (assuming no significant supply disruptions).  

The Commodities Feed: All eyes on the Fed The Federal Reserve is expected to raise rates by 25bp today, and markets will be on the lookout for any signals suggesting this could be the central bank's final hike or whether there could be more still to come.   Energy – Fed key for short term price direction Sentiment in the oil market has improved with ICE Brent settling a little more than 1% higher yesterday. The market is more optimistic following China’s Politburo meeting,  where there were promises for more support measures for the domestic economy. However, up until now, there haven't appeared to be any actual policies that have been announced. Overnight, the API also released US inventory numbers which showed that US crude oil inventories increased by 1.32MMbbls, whilst crude stocks at Cushing fell by 2.34MMbbls. On the product side, gasoline inventories fell by 1.04MMbbls, whilst distillate stocks increased by 1.61MMbbls. The report was a bit of a mixed bag, with little in the way of a strong takeaway from the numbers. The more widely followed EIA report will be out later today. The market will be watching closely the outcome of the FOMC meeting later today. Expectations are that the Federal Reserve will hike rates by 25bp, which could very well be the last hike in this cycle. However, any signal from the Fed that they have more to do will likely put some downward pressure on risk assets, including oil. The Saudis will be happy to see Brent trading back above US$80/bbl with their additional voluntary cut of 1MMbbls/d starting to have its desired effect. However, the broader OPEC+ cuts are leading to some distortions within the market (tightness in medium sour crudes) and this is evident in the unusual discount that Brent continues to trade at relative to Dubai. However, the decision that Saudi Arabia will need to make in the coming weeks is whether they will roll this additional cut into September or start to unwind it. The recent price strength might give the Saudis the confidence to start unwinding these cuts, but expectations will have to be managed and they will have to be careful how they go about it – too aggressively and it could put renewed pressure back on the market.

The Commodities Feed: LNG supply risks linger Natural gas prices are likely to remain volatile in the coming days, at least until there is some clarity surrounding potential strike action at a number of Australian liquefied natural gas (LNG) facilities.   Energy – OPEC sees deficit over remainder of 2023 Oil prices came under some pressure yesterday with ICE Brent settling a little more than 1.3% lower on the day. This is despite OPEC releasing its monthly oil market report which suggests that the market will continue to tighten for the remainder of the year. OPEC made little in the way of changes to its global oil demand forecasts for the rest of this year and for 2024. However, the group did revise higher its 2023 non-OPEC supply estimates by a little more than 100Mbbls/d on the back of upward revisions to Russian supply. OPEC numbers suggest that demand for OPEC oil over the third quarter will be 29.56MMbbls/d, which is well above the 27.31MMbbls/d that OPEC produced in July. The call on OPEC output grows to 30.74MMbbls/d in the fourth quarter, whilst over 2024, the group’s numbers suggest demand of 30.08MMbbls/d for OPEC oil. Given the current production targets of OPEC+ until 2024, these numbers suggest global oil inventories will draw for the remainder of this year and over 2024. The International Energy Agency (IEA) will publish its latest monthly oil market report later today, where it will share its latest outlook for the market.   The significant cuts that we are currently seeing from OPEC+ continue to be supportive for medium sour crudes. The Brent-Dubai spread remains in negative territory and in fact has traded to a discount of more than US$1.20/bbl – lower than the levels seen during 2020, when OPEC+ made significant cuts. The weakness in Brent relative to Dubai should mean that Atlantic Basin crudes should be more appealing to Asian buyers. It is difficult to see any significant reversal in the spread before Saudi Arabia starts unwinding its additional voluntary supply cuts. Having rallied significantly earlier in the week, following supply risks around Australian LNG, the European gas market gave back some of these gains yesterday, with TTF settling more than 6.6% lower on the day. The European gas market remains in a comfortable situation with storage more than 88% full and it is clear that the region will hit its target of 90% by 1 November, well ahead of schedule. However, the market will still need to keep a close eye on how labour negotiations progress in Australia. The potential for prolonged industrial action at a number of Australian LNG facilities could put a little over 10% of global LNG supply at risk, and given Europe’s growing reliance on LNG, this would (as already seen in recent days) have an impact on European gas prices as Asian buyers compete more aggressively for alternative supply.

The Commodities Feed: Iranian oil flows edge higher The oil market continues to face headwinds, both on the macro front and on the back of expectations of supply increases. Meanwhile, the natural gas market could see further volatility over the coming days with a deadline for labour talks at some LNG facilities approaching.   Energy - Deadline Day for some Australian LNG talks The rally in oil appears to have run out of steam for now. China's macro issues, along with a growing expectation that maybe the US Fed is not done with its tightening cycle have weighed on oil more recently. In addition, the broader strength in the USD will be providing some headwinds. Fundamentally, the outlook for the market is still constructive with large deficits to persist for the remainder of the year. However, there is some noise around growing supply, specifically from Iran. Iran has quietly increased its output by around 400Mbbls/d over the last year to a little over 2.9MMbbls/d, which is the highest level since late 2018. Iran has said that it will look to increase output to around 3.4MMbbl/d by the end of summer, which would leave it close to pre-sanction levels of 3.8MMbbls/d. Given much of the focus has been on Russian flows since the war, Iran has taken advantage of this to increase oil exports. This comes against the backdrop of apparently greater willingness between the US and Iran to improve diplomacy, evident with a recent deal for a prisoner swap and the release of frozen Iranian funds. There is also further noise around the potential restart of Iraqi oil flows via the Ceyhan export terminal in Turkey. The flows were halted back in March after a court ruled in favour of the Iraqi government, which claimed that these oil flows from the Kurdish region were happening without its consent. Iraqi and Turkish officials have been meeting this week with the hope of resuming the roughly 500Mbbls/d of crude oil that flows via this route. API numbers released overnight show that US crude oil inventories fell by 2.4MMbbls, slightly less than the roughly 3MMbbls draw the market was expecting. Crude oil stocks at Cushing continue to decline, having fallen by 2.1MMbbls over the week. For refined products, gasoline inventories grew by 1.9MMbbls, while distillate stocks edged lower by 153Mbbls. The more widely followed EIA report will be released later today. Natural gas markets should get more clarity around Australian LNG supply over the next 24 hours, given that end-of-day Wednesday is the deadline that workers at Woodside’s North West Shelf gave to come to a deal. As a result, we could see further volatility in natural gas prices for the remainder of the week. We should also get more clarity on how negotiations at Chevron’s Gorgon and Wheatstone are developing later this week.  

The Commodities Feed: US crude oil inventories drop The oil market edged higher yesterday, though the move was fairly modest when you consider the large draws seen in US crude oil inventories along with growing supply risks in West Africa.   Energy - Large US crude draw The latest EIA numbers show that US commercial crude oil inventories fell by 10.58MMbbls over the last week, which leaves total crude oil inventories at 422.94MMbbls - the lowest level since December 2022. Crude oil inventories at Cushing also saw further declines, falling by 1.5MMbbls, which takes crude oil stocks at the WTI delivery hub to below 30MMbbls and to a level last seen in January. Lower imports and higher exports were largely behind the large draw. As for refined products, gasoline inventories fell by 214Mbbls over the week, whilst distillate fuel oil stocks increased by 1.24MMbbls. This build was despite refiners reducing their run rates over the course of the week. Gasoline demand was stronger over the week, with implied demand increasing by 158Mbbls/d WoW, taking it back above 9MMbbls/d. This might be short-lived, with hurricane activity in Florida this week possibly weighing on demand. Elsewhere, there are growing supply risks after a military coup in Gabon. The West African country is an OPEC member and produces around 200Mbbls/d. While the volumes are relatively small, clearly any disruption in what is already a tight market does not help. However, up until now, there have been no reports of disruptions to the oil supply. In the coming days, the market should receive more clarity on what Saudi Arabia will do with its additional voluntary cut of 1MMbbls/d. This cut was first implemented in July for a month, but the Saudis have rolled it over a couple of times already. Our expectation is that Saudi Arabia will extend this cut through into October. There are clearly still some broader demand concerns and returning this supply to the market could see Brent back below US$80/bbl - something the Saudis would prefer not to see.  

The Commodities Feed: Russia to extend oil export curbs Crude oil prices have been trading firm this morning after Russia confirmed that it will extend export curbs, although the details are still not available. US natural gas inventory continue to increase at a strong pace providing some comfort to the market on natural gas supplies, even as uncertainty about Australian LNG continues.   Energy – Russian oil export cuts to continue ICE Brent prices traded firm yesterday and continued the gains this morning after Russia announced an extension of export curbs. Russia’s Deputy Prime Minister Alexander Novak said in a televised meeting that the country has agreed to extend the export curbs, although the details haven’t been provided yet. Russia made a voluntary cut to its oil exports of around 500Mbbls/d for August and 300Mbbls/d for September. Saudi is also likely to extend the voluntary production cuts of around 1MMbbls/d for October as demand concerns remain. China has issued an export quota of around 12m tonnes for clean refined products including gasoline, jet fuel and diesel in its third quota release for the year. China has so far issued an export quota of around 40m tonnes for clean products in 2023 compared to around 37.25m tonnes of export quota allocated for the full year 2022. Slow domestic demand and a ramp-up in refining capacity have been creating a surplus of products in the Chinese market and a higher quota is aimed at reducing this surplus. Finally, the Energy Information Administration in the US reported that natural gas inventory in the country increased by 32Bcf over the last week taking total inventory to 3,115Bcf as of 25 August. US inventory of natural gas is higher by around 484Bcf compared to year-ago levels and around 249Bcf higher than the five-year average for this point in the season. Higher gas stocks in the US and Europe provide some comfort to the gas market when a short-term supply disruption from Australia cannot be ruled out. The uncertainty over the Australian gas supply from two LNG plants (Gorgon and Wheatstone) continues, with workers rejecting the latest pay package from the company with negotiations set to resume. Without an agreement in place, workers could initiate industrial action from 7 September.

The Commodities Feed: LNG strike action delayed The oil market has shrugged off the weakness seen in equity markets with strong fundamentals continuing to support prices. Meanwhile, European gas prices came under pressure yesterday with delayed strike action at Australian LNG facilities raising hopes that parties could come to a deal.   Energy - Saudis increase prices into most regions Sentiment in the oil market remains constructive after Saudi Arabia and Russia decided to extend their voluntary supply cuts by three months. ICE Brent managed to edge higher yesterday, settling at US$90.60/bbl, whilst the Brent Dec’23/Dec’24 spread continues to surge, settling at a backwardation of US$7.28/bbl, up from less than US$4/bbl in late August. The strength in time spreads is clearly indicating tightness in the oil market. Our balance sheet shows that the market remains in deep deficit through until year-end, before moving back into a small surplus in 1Q24. While this surplus may lead to some price weakness early next year, we believe that it will be short-lived with the market set to return to deficit over the latter part of 2024.   Following the extension of Saudi cuts and the tightness in the market, it was no surprise that Saudi Arabia increased its official selling prices (OSP) for most grades of its crude into most regions. The flagship Arab Light into Asia saw its OSP raised by US$0.10/bbl MoM to US$3.60/bbl over the benchmark for October - the highest level seen so far this year. All other grades into Asia also saw increases, while similar action was taken for grades into the US and Med. Europe was the only region which saw some relief, with OSP’s for all grades cut. API data released overnight was constructive, showing that US crude oil inventories fell by 5.5MMbbls, This is larger than the roughly 2MMbbls draw the market was expecting. In addition, crude oil inventories at the WTI delivery hub, Cushing, declined by 1.35MMbbls. On the product side, gasoline stocks fell by 5.1MMbbls, while distillate stocks increased by 300Mbbls. The increase in distillate stocks was marginal but will help ease some concern over low middle-distillate inventories as we head into the northern hemisphere winter. The more widely followed EIA inventory report will be released later today.   Natural gas prices came under significant pressure yesterday with TTF falling by almost 10%. This is after growing optimism that strike action at two of Chevron’s LNG facilities in Australia may be avoided. Partial strike action was meant to start at Gorgon and Wheatstone today. However, this has been delayed until tomorrow as the company and unions continue to work towards a deal. The two facilities make up around 6% of global LNG supply so the market continues to watch these developments closely. The European market will also have to deal with lower Norwegian gas flows for a little bit longer than originally anticipated. Field maintenance at several fields, including Troll has been extended by a couple of days. Total Norwegian flows are around 137mcm/day, compared to more than 300mcm/day in mid-August.

The Commodities Feed: Lingering supply risks The oil market started the week on a weak footing. However, geopolitical risks remain elevated and the short-term outlook remains dependent on developments in the Middle East.   Energy - supply risks remain The oil market came under significant pressure yesterday with ICE Brent settling 3.35% lower on the day, while WTI traded down to its lowest level since the Israel-Hamas conflict. This is despite the fact that there are clear upside risks still facing the market in the current geopolitical environment. Disruptions to Iranian oil flows remain the most obvious risk to the market, which could see anywhere between 500k b/d and 1m b/d of supply lost if the US were to strictly enforce sanctions once again. Up until now, developments in the Middle East have yet to impact oil supply. In the absence of supply disruptions from the region, it is difficult to see a significant and sustained upside in prices. Also important for the market are developments in Venezuela. Recently, the US decided to ease sanctions against Venezuela in return for the promise of fairer elections in 2024. The expectation was that the lifting of these sanctions could see Venezuela increase its oil supply in the region of 200k b/d. However, overnight, the supreme court in Venezuela suspended the results of the opposition’s primary elections, which will likely call into question whether the sanctions relief provided to Venezuela will remain in place.   On the calendar for today, December Brent futures expire and the API will also release weekly US inventory data. In addition, markets will await China’s official PMI data which will be released this morning. Expectations are for the manufacturing PMI to come in at 50.2 for October, unchanged from the previous month. A second consecutive reading in expansion territory will likely go down well with markets, showing some further signs of firming by the Chinese economy.

The Commodities Feed: EU sanction plans on Russian aluminium An easing USD offered support to the commodity complex, with oil prices edging higher this morning. On the inventory side, API numbers remained largely bullish for the oil market. Meanwhile, recent reports of EU plans to sanction Russian aluminium helped to lift aluminium prices.   Energy – Weaker USD supports the complex The oil market has been trading higher this morning as a sharp drawdown in oil inventories reported by API helped to improve the broader sentiment. Meanwhile, a softer dollar also supported the complex. The prompt spread for Brent has moved into a deeper backwardation of US$0.43/bbl up from just US$0.03/bbl at the start of the year, indicating tighter near-term conditions. Recent numbers from the American Petroleum Institute (API) reported yesterday remained largely constructive. US crude oil inventories fell by 6.67MMbbls over the last week, significantly larger than the market expectations. Similarly, Cushing crude oil stocks are reported to have decreased by 2.03MMbbls. On the other hand, a sharp rise in gasoline stocks weighed on demand expectations. API reported that gasoline stocks jumped by 7.2MMbbls while distillates inventories fell by 0.25MMbbls, over the week ending 19 January. The more widely followed EIA report will be released later today. Meanwhile, the geopolitical situation in the Middle East remained uncertain. Qatar delayed LNG shipments to Europe as the ongoing tensions in the Red Sea are slowing shipment deliveries. It has been reported that Qatar has diverted at least six shipments heading to Europe from its regular Red Sea route since 15 January. However, despite the transport challenges, Qatar has not reduced its LNG exports with shipments for the last two weeks estimated to be up 7% compared to the same period last year. The gas market has managed to remain largely unaffected so far with the recent disruptions in the Red Sea. European gas futures continue to trade near six-month lows due to weak industrial demand, availability of alternative LNG supply and higher inventory levels.

The Commodities Feed: Gold trades softer on lower rate cut expectations Gold is softer this Thursday as stronger economic data and positive sentiment in the broader financial markets have eased Fed rate cut expectations for the March meeting. Meanwhile, a stronger EIA report pushed ICE Brent above US$80/bbl.   Metals – Gold trades softer Gold has been trading lower as the prospect of a rate cut in March eased amid positive economic data and overall sentiment in the broader financial markets. The US composite PMI advanced to 52.3 in January, the highest level since June 2023, as service sectors show a rebound. The eurozone composite PMI also increased from 47.6 to 47.9 in January, indicating early signs of bottoming out, although it still remains in the contraction zone. The positive economic data hints that the US Fed may opt to wait before cutting rates, which weighed on gold demand. Investment demand for gold remains soft, with total known ETF holdings of gold falling by around 1.3mOz in the month so far to a total of 84.3mOz as of 24 January, the lowest level in nearly four years.