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Supply concerns take a back seat, for now

Growing fears about demand hit all commodity groups hard this week as China tightened restrictions in response to renewed virus outbreaks. Energy prices took a big leg down from their highs reached last week, particularly natural gas, despite gas flows through Nord Stream 1 pausing for maintenance for three days from Wednesday. That said, European natural gas prices are still eye wateringly high compared to the start of the year. The market may have been calmed this week by reports that EU energy ministers are due to meet next Friday to discuss an emergency package to tackle soaring energy prices. Meanwhile in the oil market, G7 finance ministers agreed to implement a price cap on Russian oil. The details aren’t clear but next week we will be looking out for information on its implementation and any Russian response.

Next week, commodity prices could extend their poor run following Chinese trade data due on Wednesday. We expect weakness in construction to weigh on industrial metals imports, while fuel imports will probably be affected by renewed virus restrictions. Meanwhile, it is not entirely clear whether OPEC+ will agree another 100,000 bpd increase in oil output quotas when it meets next Monday. But in light of the recent slide in oil prices and comments made by Saudi Arabia’s energy minister (see here), we wouldn’t rule out no change or even a cut in output quotas.

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