Looking for direction

There wasn’t a clear direction in commodity markets this week, with most prices driven by commodity-specific factors. Natural gas and coal prices continued to surge, while the prices of some industrial metals struggled on the back of weaker China PMI data. Oil prices posted a small gain on the week, despite OPEC+ confirming that it will continue to gradually increase output in October, reflecting the fact that such a decision was generally expected. Indeed, the meeting was among the shortest in recent memory. We expect OPEC+ to stick to its current plans to increase production over the next year or so, and this underpins our view that the oil price rally has already peaked. The main focus next week will be on whether the latest set of trade data out of China, due on Tuesday, corroborates the softer PMI data from this week. With high frequency data suggesting that construction activity has dropped back, and foreign demand for Chinese products appearing to level off, we suspect that the recent downward trend in China’s commodity imports continued in August which should have negative implications for prices.