EUROPEAN COMMODITIES UPDATE: Crude is underpinned while metals are subdued but silver slumps

Analysis details (09:26)

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  WTI Nov and Brent Dec futures maintain modest gains but remain off best and worst levels within a tight consolidative range after the contracts settled lower by just under USD 1/bbl apiece on Friday amid profit-taking and broader risk aversion into the weekend. Price action overnight has been horizontal with an upward bias after the US government managed to notch a last-minute deal to avert a government shutdown, while Chinese markets remain on its week-long mid-Autumn Festival. WTI Nov resides just north of USD 91/bbl, within a USD 90.82-91.41/bbl range at the time of writing, while Brent Dec trades on either side of USD 92.50/bbl with a 92.17-92.77/bbl parameter. Energy traders are cognizant of the three-day ADIPEC conference in Dubai between October 2-5, although notable speakers are relatively light as markets also look ahead to the OPEC+ JMMC confab on October 4th, with no new recommendations expected by the group, while a full OPEC+ ministerial meeting is not expected to be called given the recent upward trend in crude prices. Reuters, citing four OPEC+ sources, also backed these expectations. Meanwhile, the focus could be on the voluntary cuts announced by Saudi and Russia – which are to be reviewed on a monthly basis - although desks do not expect a change on this front either after the de-facto heads extended the production and export cuts (respectively) to the end of the year. Analysts seemingly have split views on the voluntary cuts throughout the rest of the year, with some expecting a rollback of some production curbs whilst others see the voluntary cuts extended into 2024. ING says “We do not believe that the group will change its output policy. However, what is possible (and a JMMC meeting is not needed for this), is Saudi Arabia starting to ease its additional voluntary supply cut of 1MMbbls/d. The Saudis have said that there is still concern over Chinese demand.” Sticking with the supply side, the Turkish Energy Minister said within the week they will recommence operating the Iraq-Turkey pipeline; however, an Iraqi official suggested the oil pipeline cannot restart yet as there are issues that still need to be resolved on the pipeline. From a bank forecast perspective, Citi stands out as an oil market bear at a time desks expected tighter Q4 oil market conditions. Cit expects commodities performance to remain divergent and possibly be volatile through the upcoming quarter and holds a bearish view on oil, with the bank forecasting Brent to average USD 82/bbl in Q4 and USD 74/bbl for 2024. In terms of gas, Citi says TTF prices would remain about twice the early 2021 prices through 2024, averaging around USD 12/MMBtu through next year.


• Over to metals, the averted US government shutdown has unwound some risk premium in precious metals, with spot gold back under USD 1,850/oz while spot silver stands out as the underperformer with intraday losses of over 1.5%. The next obvious downside levels for the precious metals are at USD 1,827.71/oz (10th Mar low) and USD 21.50/oz respectively. Base metals are subdued by the resilient Dollar but cushioned by the averted government shutdown alongside the mixed Chinese PMIs but ultimately saw the official manufacturing metric slightly beat expectations. Analysts at Citi weighed on the metals market and suggested the industrial metal outlook is bearish. The bank expects further weakening in developed market growth, and this will likely more than offset modest strengthening in Chinese growth. The bank sees further a 5-10% downside for prices across base metals by year-end, while it sees gold bottoming in Q3/early Q4, entering 2024 above USD 2,000/oz.

02 Oct 2023 - 09:30- MetalsEU Research- Source: Newsquawk