Commodities

Energy

OPEC Monthly Oil Market Report (Jan.)

OPEC continued to raise output by less than its target in December. However, the group is still steadily raising output, which is a key reason why we see the market moving into a surplus this year.

18 January 2022

A good start to a bad year for commodity prices

Most commodity prices increased this week, with coal prices leading the pack on the back of Indonesia’s ban on coal exports this month. That said, we don’t see commodity prices rising for much longer. Indeed, Chinese imports of most raw materials fell back in December, with an especially sharp decline in imports of industrial metals. We think this is a sign of things to come in 2022. Weaker Chinese growth is one of the main reasons why we expect most prices to fall this year. Looking ahead, prices of energy and energy-intensive commodities could well be swayed by tensions between Russia and Ukraine and its allies. If tensions continue to build, this could lead to sharp swings in the price of European natural gas in particular. High gas prices in Europe have already led to the curbing of some energy-intensive metals production, including aluminium and zinc. On the data front, China will release Q4 GDP figures on Monday, which we expect to show weaker y/y growth. OPEC will also publish its December oil supply numbers on Tuesday. We expect another month of below-target output.

14 January 2022

Prices to come off the boil in 2022

After a stellar run in 2020-21, we expect the prices of most commodities to ease back this year as economic activity slows, notably in China, and supply bottlenecks start to ease. Drop-In: Neil Shearing will host an online panel of our senior economists to answer your questions and update on macro and markets this Thursday, 13th January (11:00 ET/16:00 GMT). Register for the latest on everything from Omicron to the Fed to our key calls for 2022. Registration here.

13 January 2022
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US Weekly Petroleum Status Report

Commercial crude stocks slumped last week, reflecting a partial recovery in demand. However, we think demand will remain under pressure as COVID-19 cases rise in the US and as economic growth slows.

Energy prices to fall from 2021’s highs

We see energy prices broadly falling this year as slower global economic growth should cool demand growth, but low stocks of many fuels mean prices will remain historically high and volatile for some time.

11 January 2022

Omicron risks receding; energy still in short supply

Two themes have dominated commodity markets at the turn of the year: the ongoing shortage of energy commodities and the global rise in cases of COVID-19. On the former, we think that shortages will start to ease meaningfully later this year, which will weigh on the prices of both energy commodities and other commodities with energy-intensive production processes. However, we think the oil market may be dismissing the Omicron-related hit to demand a little too readily. After all, demand in the US has already softened significantly, and China has imposed new restrictions as part of its ‘zero-COVID’ strategy. As a result, the hit to oil demand may be larger and longer-lived than is currently priced into markets, which could lead to a sharp reversal in oil prices in the near term.

Demand fears giving way to supply concerns

The experience of South Africa with the Omicron variant seems to have allayed investors’ fears over commodity demand. Indeed, the net long position held by investors in the oil futures market has begun to rise, indicating an improvement in sentiment. Despite softening oil demand in the US, any expectations of weaker energy demand owing to Omicron have been outweighed by supply concerns, following hits to oil output from pipeline outages in Libya and civil unrest in Kazakhstan. These latest shocks (which add to an already-large list of shocks) will support prices for now, which will mean that the cost of production of other energy-intensive commodities will remain high. With virus fears moved towards the backburner, attention will probably focus further on the supply picture in the coming weeks. China’s trade data for December will be released on Friday, which we expect to show that weak activity in the construction sector led to a softening in commodity imports.

US Weekly Petroleum Status Report

Commercial crude oil stocks fell, but this reflected solid demand from refineries. Implied product demand – particularly for gasoline – slumped, suggesting that the public were cautious about travel in the wake of surging cases of the Omicron variant. These fears are likely to persist for a few weeks yet.

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