EUROPEAN COMMODITIES UPDATE: Comparably contained trade awaiting fresh catalysts

Analysis details (10:50)

As it stands, WTI and Brent are firmer by over 1.5% on the session after spending much of the European morning relatively contained; however, upside occurred as China’s Politburo began the readout from their latest gathering and with the complex cognisant of Shell CEO van Beurden. Firstly, China’s Politburo readout has for the most part featured familiar language around keep operations in reasonable ranges and stabilising the employment situation; unsurprisingly, they wrote that they are to increase energy supply. Interestingly, remarking that macro policies must play a role in the expansion of demand – though further details around this are light thus far. Moving to van Berurden, post-earnings, says that there is more upside than downside potential for oil prices from their current levels as while the demand-side is yet to recovery completely, the supply-side remains tight. Adding, that he expects prices to be volatile for the remainder of the year and well into 2023. Elsewhere, but sticking with Shell, the Co. has reduced its gas intake at the Pernis (404k BPD) facility by 40% and by circa. 40% at their German sites, though this is not affecting refining products just yet. An update which comes as physical flows via Nord Stream 1 remain in very close proximity to Wednesday’s reduced levels, 14.42mln kWh/h at the 09:00-10:00BST update. Given this, European gas prices are significantly more contained when compared to price action earlier in the week but remain at elevated levels comfortably above EUR 200/MWh for TTF Aug’22. On the topic of gas and of particular pertinence to the European inflation situation (and coincidently as we get German prelim. HICP data), Germany has announced a gas levy from October 1st which will allow producers to pass on as much as 90% of their costs, a move that could increase household bills by several hundred EURs. Switching to metals, spot gold is bid by just over USD 10/oz but, again, remains subject to USD action as while the index is bid it has dipped markedly from Wednesday’s 107+ peak post-FOMC. Upside is perhaps capped on World Gold Council reports which suggest that Indian gold demand could drop YY in H2, amid reduced disposable income. Amidst the USD’s relative weakness, base metals are similarly supported.

28 Jul 2022 - 10:50- Research Sheet- Source: Newsquawk