EUROPEAN COMMODITIES UPDATE: Commodities buoyed by the softer Dollar and broader sentiment

Analysis details (09:20)

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  WTI and Brent front-month futures have held onto modest gains in a relatively quiet European morning after both contracts settled higher by USD 0.74/bbl and USD 1.01/bbl respectively. Oil markets have recently been caught in the crossfire of broader market weakness, with developments in the banking sector affecting various financial markets. As a result, oil fundamentals have been unable to support prices, leading to reduced forecasts and uncertainty regarding the market's floor. Speculators have been caught off guard by the recent risk-off movement in various markets, according to ING, resulting from the collapse of several US regional banks. ING has recently revised their ICE Brent forecast for 2023, reducing it from USD 98/bbl to USD 90/bbl. They now predict that Brent will average USD 100/bbl in 4Q23, as opposed to their previous forecast of USD 110/bbl - price forecasts have been adjusted due to softer-than-expected fundamentals. Surprisingly, the Russian oil supply has remained resilient, with exports holding up better than anticipated despite the EU ban on both Russian oil and refined products. Stronger-than-expected Russian supply has led to a larger surplus in the oil market in Q1 23, with the market expected to be more balanced in 2Q23. A significant tightening in the oil market is only expected in H2 23, driven by strong demand growth, particularly from Asia, the bank says. As the market contends with weak sentiment and softer short-term fundamentals, there is increasing speculation that OPEC+ could potentially step in and announce further supply cuts to stabilize the market. The group is already producing approximately 1.7MMbbls/d below their target levels, and any additional cuts would likely only need to run until mid-year, given the tighter market expected in H2 23. Despite the current turbulence, OPEC+ delegates reportedly remain encouraged by Asian demand, blaming the recent sell-off on speculative money leaving the derivatives oil market rather than weakness in the physical market. Furthermore, the US government could also support the market by refilling its strategic petroleum reserve (SPR) as WTI is now trading at levels within the previously specified range of USD 67-72/bbl. US energy envoy Hochstein has stated that President Biden is committed to replenishing the petroleum reserve but won’t rush to do so immediately. Elsewhere in energy, Dutch TTF and US Henry Hub futures are both flat/slightly softer intraday.


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  Metals markets meanwhile are underpinned across the board. Gold prices experienced a steady increase overnight, benefiting from a weaker dollar and setting the stage for the best week since mid-November due to ongoing concerns over the banking crisis. The yellow metal briefly eclipsed yesterday’s USD 1,933.54/oz high before pulling back, with the next upside level Wednesday’s peak at 1,937.39/oz. Base metals have also seen a rise as the anxiety surrounding the banking crisis begins to ease, although the complex is still set for a week of losses. Copper futures rebounded from their lowest levels since early January, as improved risk sentiment following the implementation of bank lifelines contributed to the recovery. Iron ore prices have risen in cautious trading, but potential steel production curbs in China may limit gains via demand factors.

17 Mar 2023 - 09:20- Research Sheet- Source: Newsquawk