EUROPEAN COMMODITIES UPDATE: Commodities drift off highs but remain underpinned by the Buck for now

Analysis details (10:20)

WTI and Brent futures have been drifting higher since the resumption of trade overnight after both November contracts settled lower by over USD 2/bbl apiece yesterday. Energy markets have several fresh developments to digest. Firstly, on the Russia front, Germany last night flagged a sudden loss of pressure on both branches of the Nord Stream 1 pipeline, following a detected leak at Nord Stream 2 earlier on Monday. This morning, Nord Stream said it has detected damage at three lines of the Nord Stream gas pipeline system and added that damages are unprecedented and is impossible to estimate when gas transportation infrastructure will be restored. Investigations into the damages are underway. Elsewhere, the EU is split on price caps on important gas (beyond Russia), which was proposed in a bid to stem company and household inflation. The issue is seemingly maintaining enough of an incentive for LNG shipments to continue to Europe, with a “dynamic” price cap proposed in order to maintain that incentive, e.g. with a slight premium to Asia. Secondly, there is an issue of competition and distribution within the EU itself. All-in-all, an agreement on this matter is unlikely to be reached, according to reports via Politico citing senior diplomats. Moving over to the Gulf of Mexico (GoM), Hurricane Ian has strengthened to a Category 3 “major hurricane” and has made landfall in Cuba, forecasts suggesting the eastern GoM will likely be affected – BP has halted production and evacuated staff at two offshore oil platforms in GoM ahead of Hurricane Ian. Meanwhile, ahead of the OPEC+ meeting next week, analysts at UBS say that only a production cut by OPEC+ can break the negative momentum within oil in the short-term, and to provide a stronger floor in oil prices, Saudi would need to make extra voluntary cuts. Sticking with banks, Goldman Sachs cut its oil forecast based on the macro outlook, with Brent now seen around USD 108/bbl in 2023 (vs prev. USD 125/bbl). At the time of writing, WTI Nov resides around USD 77.50/bbl (vs low 76.42/bbl) whilst Brent trades near USD 85/bbl (vs low USD 84.00/bbl). Over to metals, the complex is broadly buoyed by the pullback in the Dollar - spot gold resides within yesterday’s range but remains sub-USD 1,650/oz. Base metals are also generally firmer with LME copper eyeing USD 7,500/t to the upside. On this note, mining giant Glencore is reportedly facing disruption as Maike Metals International struggles with a liquidity crisis, according to the FT. The article added that Glencore was selling around 600k/T year of copper into China through Maike Metals before the liquidity issues, according to sources, a level that accounted for a fifth of Glencore’s sales of copper metal and concentrates last year.

27 Sep 2022 - 10:23- Research Sheet- Source: Newsquawk