EUROPEAN COMMODITIES UPDATE: Choppy trade with geopolitics in the foreground and US participants coming back from the long weekend

Analysis details (09:59)

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  WTI and Brent April futures have experienced a choppy Tuesday session thus far but ultimately trade with losses as risk sentiment dwindles ahead of the return of US participants. Intraday percentage changes between the contracts diverge amid the Presidents’ Day holiday observed stateside on Monday. The morning has been busy with crude-relevant headlines. Russian President Putin addressed the Russian Federal Assembly in his annual State of the Union speech, but stopped short of announcing any fresh measures, as speculated, but said Russia will decide on the tasks of the special military operation step-by-step. Sticking with the war, Belarus said it sees direct threats to its military security, according to Tass citing the Defence Ministry, and added that a significant grouping of the Ukrainian army is massed near its border. Ukrainian Presidential Aide said Ukrainian forces have a situation along the northern border under "special control". Meanwhile, US President Biden is poised to deliver a speech around 16:30GMT/11:30EST in Poland, whilst US National Security Adviser Sullivan suggested President Biden is to discuss civil nuclear cooperation with Poland. All this comes in the run-up to the first anniversary of Russia’s invasion of Ukraine, whereby participants fear a renewed offensive to capture Ukraine. Elsewhere, Russian Deputy PM Novak hit the wires with clarity on the recently announced 500k BPD oil production reduction. Novak said oil output reductions in March will be from January levels, according to Interfax, whilst the decision itself was only made for March. WTI April trades just above USD 76/bbl (vs high USD 77.74/bbl) while its Brent counterpart sits just north of USD 82.50/bbl (vs high USD 83.94/bbl). “The next leg higher needs to be based on so-called positive micro signals, which for oil would include slowing Russian output, stronger time spreads and drawing inventories,” said the analysts at Goldman Sachs, as the desk reiterates its target for Brent to rally to USD 100/bbl by December.


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  Nat gas markets are softer on both sides of the pond, albeit modestly and potentially a function of risk aversion. US Henry Hub sits around USD 2.25/MMBtu while Dutch TTF trades on either side of EUR 49/MWh. Goldman Sachs believes US natural gas prices have “significantly overshot to the downside”.


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  In Metals markets, spot gold feels modest pressure from the Buck, but prices are contained to within yesterday’s range, as the yellow metal eyes tomorrow’s FOMC minutes, while it sees its 50 WMA and 100 WMA at USD 1,804.50/oz and USD 1,809.25/oz respectively. Analysts at Goldman Sachs forecast gold to rally to USD 1,950/oz over 12 months. Base metals meanwhile are mixed despite the downbeat risk mood. LME copper is slightly softer but remains on a USD 9,000/t handle whilst LME aluminium trades firmly amid reports of capacity cuts in China’s Yunnan province due to power shortages – thus stoking supply concerns.

21 Feb 2023 - 10:05- Research Sheet- Source: Newsquawk