EUROPEAN COMMODITIES UPDATE: Crude sees modest gains, gold trades flat and base metals have no conviction

Analysis details (10:50)

WTI and Brent futures are in the green after both front-month contracts settled lower by over USD 2/bbl apiece yesterday. The narrowing WTI/Brent gap has been grabbing the attention of market participants heading into US driving seasons – “At a time when US gasoline inventories should be building ahead of the driving season, inventories instead have declined for most of this year. These are now below the low end of the 5-year range. Gasoline demand should only increase over the coming months and, in the absence of a pick up in refinery runs, the gasoline market is likely to continue to tighten. The tighter gasoline market appears to have also contributed to a narrowing in the WTI/Brent discount, given the need for higher US refinery runs, which should be supportive for US crude demand.” ING states. The desk highlights that the APIs released overnight also confirm the tightening market, with a surprise draw in headline crude and a much deeper-than-expected draw in gasoline. In terms of fundamentals elsewhere, China’s COVID situation is more mixed - Shanghai registered a 4th consecutive day of zero transmissions outside of quarantine, but Beijing was said to lockdown some areas in its Fengtai district for seven days. In terms of the EU’s Russian oil embargo, the EU and Hungary are negotiating financial support for Budapest so it lifts its veto on the bloc's planned embargo on Russian oil, although differences remain over funds for refineries, according to Reuters sources. WTI and Brent July contracts reside just under USD 111.50/bbl and USD 113.50/bbl respectively. Over to metals, spot gold has been drifting off the lows but, upside remains capped by a firmer Dollar, with the spot metal around the USD 1,815/oz mark. Base metals are mixed but some recent strength has been cited to Shanghai’s lockdown relaxation and US retail sales. On steel, ING writes “China Iron & Steel Association (CISA) said that China will keep its restrictions on new steel capacity intact and would push for more mergers and acquisitions within the industry. Due to ongoing Covid-related restrictions, steel demand has remained under pressure recently, but this should improve as the Covid situation improves. Mysteel expects China’s steel demand over 2H22 to rise by 10% compared to 1H22, whilst YoY growth is expected to hit 15% in 2H22. This growth is expected to be supported by local government policies.”

18 May 2022 - 10:49- MetalsGeopolitical- Source: Newsquawk