EUROPEAN COMMODITIES UPDATE: Crude trims gains on German growth concerns while metals cheer Chinese stimulus hopes and gold meanders around its 100DMA

Analysis details (10:09)

• WTI and Brent are now mostly softer intraday as the complex came off the best levels seen overnight with added pressure from the German Ifo Survey which, in fitting with yesterday’s PMIs, underscored a worsening economic situation in Germany - the largest EZ economy. Overnight, prices were underpinned by hopes of Chinese stimulus following the Politburo statement yesterday, which hinted at further measures to prop up the sluggish Chinese economy – “China is key for global oil demand growth this year and the market has been getting increasingly concerned over the weaker-than-expected economic recovery, so any support measures will be helpful in easing some of these concerns”, highlights the desk at ING. Back in Europe, the German Ifo suggested German GDP is likely to shrink in Q3 and added that the weak phase of the German economy extends, and export expectations in the industry have worsened slightly - no improvement is expected from the export side. At the same time, the ECB Bank Lending Survey showed further evidence that the EZ economy is feeling the weight of ongoing ECB monetary tightening, which, allied with the soft PMI metrics yesterday, will be food for thought for the ECB and will likely temper some of the more hawkish views on the Governing Council over how much more tightening is required/the bloc can handle. Over to the supply side, analysts suggest risks are growing following Russia’s bombing of Ukrainian ports – but although this isn’t a direct risk to energy, there are fears of a spillover - particularly as Ukraine, following a similar statement by Russia, suggested any ships heading to Russian Black Sea ports could be deemed potential military targets. The Black Sea Port of Novorossiysk ships close to 500k BPD whilst the CPC terminal exports some 1.2mln BPD of oil from Kazakhstan. In terms of price action, WTI Sep resides around USD 78.50/bbl (vs high 79.08/bbl) while Brent Oct trades just above USD 82/bbl (vs high USD 82.80/bbl) after the latter settled north of its 200DMA (USD 82.01/bbl on the continuous contract).


• Sticking with energy, gas prices have also been bolstered thus far this week with analysts citing refinery disruptions from hot weather and tightness in the octane markets. Dutch TTF has risen back above EUR 30/MWh with the gas winter restocking re-stocking season also in play. Analysts at ING “expect prices to come under pressure over much of the third quarter, given storage will be full well ahead of the next heating season (assuming no significant supply disruptions).” Analysts at Barclays meanwhile expect the cross-Atlantic spread in NatGas to narrow over time, and add that the fundamentals are on the mend, despite relatively subdued cooling demand, which is boosting Barclays’ structural positive view of the market, according to the desk.


• Over to metals, spot gold continues to oscillate on either side of its 100 DMA (1,962.91/oz) ahead of a triple-threat of central banks including the likes of the FOMC tomorrow, ECB on Thursday, and BoJ on Friday. Analysts at Citi suggest the macro environment is skewed positively for precious metals over a 6–12-month horizon; seeing gold possibly rising to USD 2,100-2,200/oz; and silver reaching USD 28-30/oz. Base metals have been underpinned this week by the Chinese Politburo meeting which reignited some optimism in industrials via the hint of further stimulus, albeit the upside is currently capped by the German economic woes telegraphed by the Ifo data.


• Agriculture remains a theme as supply risks grow with Chicago Wheat rallying some 10% overnight at one point, whilst corn prices were also supported. The supply fears emanate from Russia attacking the Danube River infrastructure yesterday – which has seen increased shipments by Ukraine since the war. Ukraine was set to rely further on this route following Russia's pulling out of the Black Sea grain deal.

25 Jul 2023 - 10:13- MetalsEU Research- Source: Newsquawk