EUROPEAN COMMODITIES UPDATE: Crude and industrial metals keep climbing but gold loses its shine as banking fears ease

Analysis details (09:47)

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  WTI and Brent May futures continue to climb, in part aided by the softer Dollar, after rising at the fastest pace since October on Monday. The rally yesterday was largely driven by reports that Iraq was forced to halt some 450k BPD of crude exports (0.5% of global supply) after Turkey stopped pumping Iraqi crude following Iraq’s victory in an arbitration case, where it claimed Turkey breached a joint agreement by permitting the Kurdistan Regional Government (KRG) to export oil to Ceyhan without Baghdad's approval. The pipeline stoppage is poised to continue until Ankara, Baghdad, and KRG reach a settlement. Furthermore, the geopolitical landscape is heating up as North Korea called for the scaling up of weapons-grade nuclear materials and included similar language used before its last nuclear test in 2017, whilst Belarus’ Foreign Minister justified that Russia’s movement of tactical nuclear weapons into the country is due to western threats. Elsewhere, recent reports suggested swap dealers recorded the second-largest increase in long positions in ICE Brent futures and options, whilst desks, including Goldman Sachs, predict a rebound later this year. On that note, Morgan Stanley (in a note dated 27th March) suggested the oil risk-to-reward remains positive, although the outcomes vary widely. The desk also noted that demand is still recovering from the China reopening – comments echoed by the OMV CEO – whilst MS also suggested a Slowdown in OECD economic activity could offset demand tailwinds, but reduced shale supply growth may provide support. MS also noted, “Prices are approaching levels that could drive US activity cuts, with some higher cost private drilling now uneconomic.”


• Over to gas markets, US and European prices diverge. Dutch TTF May 2023 resides close to the EUR 42/MWh mark after dipping sub-EUR 41/MWh earlier in the session, whilst US Henry Hub May is on a slightly better footing and just under USD 2.25/MMBtu within recent ranges. Analysts at Morgan Stanley say “prices likely still need to move lower to incentivize an adequate supply response, but we may be approaching the bottom”, as prices sit near MS’ Q2 2023 target of USD 2.25/MMBtu.


• Over to metals, spot gold is once again under some pressure and failed to benefit from the softer dollar overnight as the easing banking fear unwind some risk premium in the haven. Gains for the yellow metal are also capped by the DXY clambering from session lows during the European morning, albeit the index remains caged to a tight range. From a technical standpoint, spot gold is still well within Tuesday’s 1,944-79/oz parameter. Industrial metals are mostly firmer as the region gained on the recent Dollar selling, whilst the improved mood surrounding banks also underpinned the complex, with 3M LME copper back on a USD 9,000/t+ handle, whilst LME nickel, lead, and aluminium all post gains.

28 Mar 2023 - 09:49- Research Sheet- Source: Newsquawk