EUROPEAN COMMODITIES UPDATE: Commodities on the backfoot as Dollar claws back losses and risk tilts lower

Analysis details (09:30)

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  Oil prices are firmer intraday but off best levels following two back-to-back sessions of losses which brought the latter down to its lowest levels since December 2022. WTI Apr and Brent May futures saw choppy trade on Tuesday, again taking cues from broader risk sentiment, with benchmarks closing at lows after the contracts settled lower by USD 3.47/bbl and USD 3.32/bbl respectively. WTI has dipped under USD 72/bbl (vs USD 72.56/bbl high) while Brent dipped under USD 78/bbl (vs USD 78.73/bbl high). No major reaction was seen to the in-line headline print in Private Inventories, which saw crude build 1.2mln (exp. +1.2mln), whilst the internals were also bullish amid larger-than-expected draws. Meanwhile, the morning saw the release of the IEA oil market report in which its 2023 global oil demand forecast was upped 200k BPD to 101.9mln BPD (prev. 101.7mln BPD) while suggesting that oil supply is outstripping lacklustre demand, but the market will balance in the middle of the year. The release suggested world oil supply is expected to grow by 1.2mln in 2023, driven by non-OPEC+ producers such as the United States, Brazil, Norway, Canada, and Guyana. IEA also noted that Russian oil production and exports have held up relatively well despite sanctions, but the output is expected to decline, leading to a potential deficit in the oil market. It also suggested global oil demand growth is picking up after a slowdown in the second half of 2022, and jet fuel deliveries are expected to play a central role in growth. IEA warned that the impact of the EU embargo and price cap on Russia's product exports will be a key factor in meeting demand growth, and “new refineries in Africa and the Middle East, as well as China, are expected to step in to cater for the growth in refined product demand.” On that note, the Russian Energy Minister said Russian oil production will decline this year, via Tass. Geopolitics remains a source of concern after the US military confirmed that a Russian fighter jet struck the propeller of a US military Reaper drone. The US has accused Russia of conducting an "unsafe and unprofessional" intercept, stating that the Russian jets flew in front of the drone and dumped fuel on it in a reckless manner before the collision. Meanwhile, Russia has denied involvement in the incident, with the defence ministry stating that the drone crashed due to sharp manoeuvring. Add to that, the continued missile test from North Korea against the backdrop of South Korean and US military drills. On the topic of military drills, reports suggested Iran, China, and Russia will today begin joint naval drills in the northern Indian Ocean.


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  Gas futures are relatively flat this morning but still showing some mild divergence, with US Henry Hub futures holding above USD 2.50/MMBtu while its Dutch TTF counterpart trades on either side of EUR 45/MWh. On the LNG front, Elengy, the operator of French LNG terminals, has confirmed that strikes on three French LNG terminals will continue until March 21.


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  Metals trade mostly lower as the Dollar gains ground and risk sentiment deteriorates. Spot gold has relinquished its USD 1,900/oz status after printing a March high of USD 1,914/oz amid the fears surrounding the US banking sector, although as the fears abate, the risk premium priced into gold looks to fade. On the downside, the yellow metal sees its 50 DMA around USD 1,874.53/oz today ahead of Monday’s USD 1,871.46/oz low. Base metals trade mostly lower amid the soured risk sentiment, with 3M LME copper dipping under USD 8,750/t. Elsewhere, the Philippine Nickel Industry Association opposes Indonesia's plan to form an OPEC-like alliance to coordinate supply. The alliance would’ve included Australia, Brazil, and the Philippines, and would aim to add more value domestically and become part of the battery supply chain. However, the Philippine Association argues that the country's lower-quality nickel and smaller reserves would make it difficult to attract funds. Australia's major mining association and Canada's trade minister also rejected the proposal. The Philippines is the world's second-largest nickel producer after Indonesia.

15 Mar 2023 - 09:34- MetalsGeopolitical- Source: Newsquawk