EUROPEAN COMMODITIES UPDATE: Commodities buoyed by war-premium, haven bid, and China’s return

Analysis details (10:17)

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  WTI and Brent front-month futures are firmer intraday but off worst levels, after gapping higher at the resumption of electronic trade on the back of the geopolitical flare-up in the Middle East coupled with China’s return to the market from the long holiday. While there aren’t any immediate near-term supply risks via production/port/pipelines/refineries etc, the attack on Israel by Hamas over the weekend has raised the prospect of a postponement in the normalisation of Saudi/Israel relations alongside upping the risk of sanctions on Iran if the West deemed Tehran had an involvement in the militants’ multifaceted attack on Israel. Analysts at Citi suggest “The attacks almost certainly postpone any Saudi/Israeli rapprochement, along with any high probability expectation of Saudi Arabia reducing or eliminating its extra 1mln BPD cut if prices resume their recent fall. Risks also grow for an Israeli attack on Iran, given its support and encouragement to Hamas, with timing an open question. Meanwhile, any expansion of battles will have potential repercussions on oil markets.” Amid the reported potential Iranian involvement, Citi says, “the US is likely to be significantly less permissive and encouraging of additional Iranian exports, and might take actions to more rigorously impose sanctions impeding Iranian exports and access to frozen assets going forward.” Analysts at RBC also say they will be “watching how strongly Prime Minister Netanyahu blames”. ING says “Israel is a very marginal oil producer, and so recent developments will have little direct impact on oil supply. However, given the rising tension in the region and the risk that the conflict could spread, market participants will remain nervous until there is a clear de-escalation.” Meanwhile, Goldman Sachs believes the developments are unlikely to have an “immediate large effect on the near-term supply-demand balance and near-term oil inventories”, as they maintain their forecast that Brent will rise to USD 100/bbl by June 2024 from Friday’s USD 85/bbl. However, the bank sees two potential implications that may way over global oil supply over time: 1) Reduced probability of Saudi-Israeli normalization and associated boost to Saudi production. 2) Downside risks to Iranian oil production. Onto OPEC, Saudi Arabia, Iraq, Kuwait, UAE, Oman and Bahrain reaffirmed commitment to collective and individual voluntary adjustments to oil production, according to a Saudi state news agency. This morning, the OPEC World Oil Outlook did not induce market moves while the report raised its five-year demand forecast, in fitting with sources cited by Reuters on Friday. Over to the Iraq-Turkey oil flow debacle, Iraq said it had not received formal notification from Turkey that the oil pipeline bringing crude from Iraq is operational, according to two senior officials cited by Reuters. WTI Nov had moved back above USD 85/bbl vs a sub-USD 83/bbl close on Friday, but prices have waned off the USD 87.24/bbl peak set overnight. Similarly, Brent December oscillates around USD 87/bbl (vs Friday’s sub-84.50/bbl close) after testing USD 89/bbl to the upside overnight. The strength has also reverberated to gas markets as Dutch TTF Nov rises 7.5% intraday to levels above EUR 41/MWh, while over in Australia, Chevron said it continues to work with all parties to draft a final agreement based on the recommendation of the Australian Fair Work Commission in response to new strike threats.


• Spot gold saw a surge of over USD 20/oz overnight as traders flocked to the haven after Israel declared war following the surprise attack by Hamas over the weekend. The yellow metal rose from a USD 1,830.26/oz low to an APAC peak of USD 1,855.99/oz before stabilising on either side of USD 1,850/oz throughout the European session thus far. Base metals are firmer across the board as China returns from its Golden Week holiday, with LME copper mounting USD 8,100/t from a USD 8,011/t low, while reports from the FT suggested copper producers warned of a lack of mines to meet the demand for the metal. Elsewhere, mining giant Rio Tinto said it expects 2024 iron ore shipments between 323mln-338mln at Pilbara, modestly above its 2023 forecast of “the upper end” of 320mln-335mln tonnes. Meanwhile, it was also reported that Indian steel firms are planning to raise prices of various grades amid rising import costs of coking coal.

09 Oct 2023 - 10:21- MetalsGeopolitical- Source: Newsquawk