EUROPEAN COMMODITIES UPDATE: Crude underpinned but contained, gold wanes, and copper hits near 7-month highs

Analysis details (09:55)

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  WTI and Brent March futures trade choppily in contained ranges at the start of the week, with little volatility seen overnight amid mass APAC closures – particularly the absence of Chinese markets amid the week-long Lunar New Year holiday. Prices remain underpinned by a rosier demand picture as fears of steep recession abate (for now) whilst China’s reopening provides support for the demand side – particularly with the Lunar New Year historically being the largest annual human migration event. Complex-specific newsflow has been somewhat light at the start of the week, however, Politico reported that the G7 is considering two price caps for Russian oil products, one for expensive products such as diesel or gasoline and another for cheaper products e.g. fuel oil, according to EU diplomats. G7 coalition partners need to agree on the price cap, it is not just a decision for the EU. Over the weekend, US Treasury Secretary Yellen said western countries are working on price caps for Russian refined petroleum products to ensure the continued flow of diesel but added it is complicated and there is a possibility that things may not go to plan, according to Reuters. Reminder, in December the EU, G7 and Australia agreed on a price cap on Russian crude of USD 60/bbl; a figure which has already been subject to calls for it to be lowered. However, the likes of the US are opposed to a reduction. WTI trades around USD 81.75/bbl (vs low 81.05/bbl) and Brent resides around USD 87.75/bbl (vs low 86.92/bbl).


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  US Nat Gas prices have been on an upward trajectory this morning, with the Feb contract gaining some 8% at the time of writing – participants cite the upcoming colder weather. On the gas cap front, EU Securities Watchdog ESMA said the EU gas price cap could impact the orderly functioning of markets and impact financial stability, according to a draft report cited by Reuters. For context, ICE warned in late December that it may remove the trading market (TTF) from the Netherlands in the scenario that a price cap on gas was implemented, according to the FT citing a memo, which said the rapid imposition of a cap would give it no time for customers to adapt or for the market operator to test the system’s resilience and risk management systems -  as such, ICE said at the time it would consider all options if the price cap mechanism was agreed upon.


• Over to metals, spot gold has been waning from its USD 1,935.41/oz overnight peak heading into the European open, with traders citing profit-taking following the yellow metal’s recent run higher. In terms of technicals to the upside, spot gold saw a high of USD 1,937.49/oz on Friday, whilst downside levels include Thursday’s trough at 1,899.88/oz. It’s also worth acknowledging levels near the yellow metal’s 10 DMA acted as support since late December, with the 10DMA today at USD 1,908.13/oz at the time of writing. Elsewhere, India is planning to lower gold import duty to prevent the increase in smuggling, according to Reuters sources.


• Base metal prices in Europe are mixed but eyes turn to LME copper which hit near-7-month highs overnight – buoyed by the rosier demand picture emanating from China, whilst supply-side concerns are growing amid the social unrest in Peru - with desks suggesting around 2% of global copper supply is at risk from the Peruvian developments.

23 Jan 2023 - 09:40- MetalsEconomic Commentary- Source: Newsquawk