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New year, same trends

Most commodity prices declined this week, with energy prices falling especially sharply. Unseasonably mild weather in Europe and the US weighed on heating demand, prompting a plunge in gas prices. The European natural gas price currently sits at levels unseen since the Russian invasion of Ukraine. The resulting boost to gas storage levels has greatly improved the supply picture for 2023. Accordingly, we have revised down our end-year price forecast from €150 to €100 per MWh. But the risks lie firmly to the upside.

Meanwhile, crude oil prices continued their recent downward trend. We expect further price falls in the coming months as advanced economies teeter on the cusp of recession and high COVID-19 case numbers in China keep activity in the doldrums. But crude prices should be revived later in the year by a pick-up in demand at a time of constrained supply.

Turning to next week, China’s trade data for December will be released on Friday. We think the negative shock to activity from the reopening wave will have hurt commodity imports. That said, a rise in refinery activity in anticipation of higher future demand may have given a boost to oil imports. Meanwhile, the latest US CPI figures will be released on Thursday. This could give a slight lift to commodity prices if we are right in expecting the data to prove more disinflationary than consensus expectation.

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