EUROPEAN COMMODITIES UPDATE: Crude grinds higher and metals trade mostly firmer, but aluminium bucks the trend on the LME

Analysis details (09:51)

• 
  WTI March and Brent April futures continue grinding higher in early European trade in a continuation of the rally experienced yesterday, which saw both benchmarks settle higher by USD 3.03/bbl and USD 2.70/bbl respectively. The optimism surrounding energy space comes against the backdrop of several factors. On a macro level, some upside could be attributed to growing expectations that the global economy will experience a “soft landing”, whilst Chinese demand continues to come back online following its reopening and abandonment of the zero-COVID policy. On that note, the EIA’s Short-term Energy Outlook (STEO) yesterday raised its 2023 and 2024 world oil demand forecasts by 60k BPD and 70k BPD respectively. “Oil prices rose during January in part because of the expectation of increasing oil demand as a result of relaxing COVID-19 restrictions and increasing mobility in China. Perceptions of a less severe recession and some improving macroeconomic conditions also likely contributed to rising crude oil prices over the past month”, the release said, “We expect that the Brent spot price will average USD 85/bbl in the first half of 2023 (1H23). However, we expect global oil production to continue to outpace demand over the forecast period, leading to persistent global oil inventory builds through 2024 and falling oil prices.” Furthermore, yesterday’s Private Inventory data printed a surprise draw (Crude -2.2mln vs exp. +2.5mln), although the internals were bearish with larger-than-expected builds in Gasoline and Distillates. Commentary from influential energy officials has been abundant this morning - Equinor CEO sees a tight and volatile oil market going forward, adding that there is little spare oil production capacity and uncertainty remains regarding China's economic recovery and the sanction impact on Russian production. Meanwhile, TotalEnergies CEO sees the oil price at around USD 80/bbl. Elsewhere, Russian Deputy PM Novak said he is confident the Russian energy sector will develop in a stable matter, and added Russia has February contracts for oil production supply, whilst an Iranian official suggested OPEC+ is moving in the right direction and is likely to continue its current output policy, and added he sees oil prices heading towards USD 100/bbl. It’s also worth noting India's Oil Minister said the OPEC SecGen has invited India to the next OPEC+ meeting. WTI extends gains above USD 78/bbl (vs low USD 77.08/bbl), while its Brent counterpart eyes USD 85/bbl to the upside (vs low USD 83.51/bbl).


• 
  Nat gas futures once again diverge, with US Henry Hub on a firmer footing and back above USD 2.5/MMBtu, while Dutch TTF is softer within recent ranges. In terms of a market outlook, TotalEnergies noted “The tensions on European gas prices seen in 2022 are expected to continue into 2023, as the limited growth in global LNG production is supposed to meet both higher European LNG demand to replace Russian gas received in 2022 and higher Chinese LNG demand.”


• Over to metals, spot gold is on a firmer footing intraday as the yellow metal benefits from the post-Powell Dollar decline, but prices remain under USD 1,900/oz and around yesterday’s USD 1,884.41/oz high. Base metals are mostly firmer amid the “soft landing” narrative and softer Dollar, with 3M LME copper back above USD 9,000/t and just off session highs at the time of writing. LME aluminium lags and eyes USD 2,500/t to the downside following an exceptionally large warehouse build of 105.6k (vs prev. -2k).

08 Feb 2023 - 09:54- Research Sheet- Source: Newsquawk