Impact of Suez blockage likely to be short-lived

Commodities markets were something of a mixed bag this week. The grounding of a container ship in the Suez Canal helped to prop up the prices of some commodities despite growing worries over the potential hit to demand in Europe from the slow vaccine rollout and lockdown extensions. The Suez blockage pushed up the price of natural gas, and it also put the brakes on the decline in oil prices seen earlier in the week. Ultimately though, while there may be a temporary boost to commodity prices as freight is disrupted and ships are forced to divert around Africa, we don’t foresee any long-lasting implications. Countries will source commodities from elsewhere or draw down stocks until the canal re-opens. Next week, while eyes may remain on progress resolving the blockage in the Suez Canal, the main events will be the release of the March PMI data and the OPEC+ meeting, both scheduled for Thursday. We expect China’s manufacturing PMI to show that foreign demand boosted factory activity and the US data are likely to be strong too. Meanwhile, with oil prices having fallen back since the last OPEC+ meeting and the recovery in US oil output remaining sluggish, it seems likely that OPEC+ members will maintain their current low level of oil production for another month.
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Commodities Economics Chart Book

The net effect of Omicron on commodities is not clear

Most commodity prices have fallen in the last week or so following the identification of Omicron – a new, and potentially more transmissible, strain of COVID-19. However, while commentary has generally focused on the effects that the new strain and associated lockdown measures may have on commodity demand, less attention has been paid to the implications for supply. After all, OPEC+ has left the door open to a change in output quotas before the group’s next meeting in early January. And, at a time of already declining stocks of industrial metals, there is a risk that the new variant prompts closures of major smelters and mines. As a result, we are leaving our price forecasts broadly unchanged for now. In view of the wider interest, we are also sending this Commodities Overview Chart Book to clients of our Energy and Metals Service.

7 December 2021

Commodities Update

Rise in China commodity imports may be misleading

The sharp rise in China’s commodity imports last month could be taken as a sign that underlying demand growth is undergoing a renewed acceleration. But given that this is just one month’s data, and that other indicators point to a further softening in demand from commodity end-users, we are sceptical. In view of the wider interest, we are also sending this Commodities Overview Update to clients of our Metals Service.

7 December 2021

Commodities Weekly Wrap

OPEC+ sticks to its plan, no forecast change required

Oil prices fell briefly on Thursday after OPEC+ decided to push ahead with its plan to raise oil output by 0.4m bpd a month, despite plunging oil prices since news of Omicron broke. Prices recovered shortly after, though, probably because OPEC+ left the door open to making quota changes before its next meeting in early January. It appears the group needs more time to mull over the oil-demand implications of Omicron. We have revisited our own oil market outlook. Turning to next week, China’s trade data for November comes out on Tuesday. We expect imports to have fallen, reflective of softer construction activity. We’ll be holding a Drop-In on the same day (08:00 GMT/16:00 HKT) with the China team to discuss the data and China’s commodities demand outlook (Registration). And more broadly, markets will be closely monitoring Omicron-related developments next week.

3 December 2021

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Commodities Economics Chart Book

An emboldened UAE scuppers the OPEC+ united front

Oil prices were rising in June even before the July OPEC+ meeting ended in disarray, without agreement. Strong growth in demand as economies lift virus-related restrictions is expected to continue to support the prices of all energy commodities in the coming months. However, we expect the prices of metals and agricultural commodities to ease back as supply gradually picks up.

6 July 2021

Commodities Weekly Wrap

Oil to outperform in Q3

We expect strong growth in oil demand this quarter as virus-related travel restrictions are lifted in most of the largest consuming countries. At the same time, supply will remain relatively constrained even if, as we think likely, OPEC+ is gradually raising output. These positive fundamentals should push oil prices higher in the coming weeks, before they start to fall back later in the year. By contrast, we think industrial metals prices have probably already peaked. China’s June PMI readings, released this week, were weaker and we expect growth in the economy to slow further as policy conditions tighten. What’s more, the PMIs showed some softening in orders for China’s exports, which are typically metals-intensive. Turning to next week, it is relatively quiet on the data front although the oil market will presumably be digesting the outcome of today’s OPEC+ meeting. At the time of writing, the group was still in discussion about production quotas for August. We will analyse the outcome of the meeting in a forthcoming Energy Update, early next week.

2 July 2021

Commodities Weekly Wrap

This week’s sell-off a sign of things to come

Commodity prices fell sharply this week following a more hawkish than expected Fed meeting and a disappointing batch of activity data out of China. Both developments are in line with our forecast of higher real yields and a stronger dollar in the US, as well as slower economic growth in China as policy support there continues to be withdrawn. In turn, this supports our view that most commodity prices will end the year lower. What’s more, the scale of this week’s fall in commodity prices is also consistent with our assessment that much of the rally over the last year or so has been led by investor speculation as opposed to a genuine improvement in the underlying fundamentals. Following this week’s excitement, next week is likely to be quieter. The June flash PMI data for the euro-zone will be released on Wednesday, and we expect them to provide further evidence that economic activity there is rebounding as virus-related restrictions continue to be eased. If so, this could help commodity prices to claw back some of their losses from this week.

18 June 2021
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