EUROPEAN COMMODITIES UPDATE: Crude marches as EU finds an embargo accord whilst metals fade earlier gains

Analysis details (11:00)

WTI and Brent futures are firmer with the market buoyed by demand-supportive measures from China alongside EU leaders finding an accord on a Russian oil embargo for the sixth sanctions package. Delving deeper into the latter, EU leaders agreed on a watered-down version of the original proposal unveiled by the European Commission President in early May. The agreement would see a ban on seaborne oil over the next six months, whilst pipeline oil will temporarily be exempted. Hungary would effectively be exempt as it has no seaports. Germany and Poland, who are both fed by the North Druzhba pipeline, agreed to a voluntary phase-out – with the total hit closer to around 90% of Russian flows to the EU. “This move is supportive for prices. However, the market has had a month to digest the potential ban, and so we suspect it is largely priced in already”, analysts at ING believe. Further, Gazprom is poised to halt gas flows to the Netherlands after Russia’s new payment terms were rejected by the Dutch, although desks believe the European nation can make up for the lost flows. The Netherlands is the fourth country to see Russian gas flows halted (after Poland, Bulgaria and Finland), ING reminds us. Elsewhere, China’s COVID situation remains on an improving downtrend, although the situation remains fluid – with Beijing's Fengtai district tightening COVID curbs following five cases and now requires all residents to work remotely to reduce mobility. The complex is also subject to risk sentiment as US players return from their long weekend. As a reminder, the weekly Private Inventory data this week will be released on Wednesday and the EIA data on Thursday. WTI Jul resides around USD 119/bbl (vs low 114.9/bbl) whilst Brent Aug trades just under USD 120/bbl (vs low 117.45/bbl). Elsewhere, spot gold follows yields, with the yellow metal within its overnight range ahead of the inflation meeting between US President Biden, Fed Chair Powell, and Treasury Secretary Yellen. Base metals are now mixed as the subdued risk sentiment sapped some China-used optimism from the market, although LME copper holds above USD 9,500/t for now.

31 May 2022 - 11:00- EnergyResearch Sheet- Source: Newsquawk