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Demand fears trump supply fears, for now

Most commodity prices plunged this week on the back of monetary tightening by many major central banks, including the Fed, and an appreciation of the US dollar. There is still considerable uncertainty about the scale of the global economic downturn, but the prospect of weaker demand will drag on prices in the coming months. However, we are mindful that the outlook for supply of many commodities has also deteriorated recently, which will eventually act as a floor under prices, particularly if the worst fears over demand do not materialise. Given that we think energy supply risks are particularly high, we expect energy prices to pick up a little from here by end-2022, but we think most metals prices could fall further.

Turning to next week, EU energy ministers are set to meet on Friday. So far it appears that the agenda will include measures to reduce energy demand and to curb windfall gains for (non-gas-based) electricity producers and fossil fuel companies. These plans could prompt a fall in prices. The proposed G7 oil price cap may also be discussed. Otherwise, China’s September PMIs will be published next Friday. We expect they will be a bit weaker than August’s readings given the COVID-related restrictions on activity. Accordingly, they may also weigh on prices.

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