EUROPEAN COMMODITIES UPDATE: Industrials subdued after Chinese inflation figures, spot gold trades horizontally ahead of US CPI later this week

Analysis details (10:05)

• WTI and Brent futures are softer intraday following last week’s respectable gains, with ICE Brent settling nearly 4.8% higher last week, marking its second consecutive week of gains. This positive force was largely driven by cuts from Saudi Arabia and Russia, which offset some growth woes. The latest data shows that speculators increased their net long in ICE Brent by 25k lots over the last reporting week, primarily due to fresh longs entering the market. It was also announced on Friday that the US Strategic Petroleum Reserve (SPR) is refilling. The Department of Energy (DoE) announced plans to purchase around 6mln barrels of US sour crude oil for delivery in October/November. So far, the DoE has tendered 6.3mln barrels, set for delivery in August and September. “There had been reports that the DoE was looking to buy roughly 12mln barrels this year, and if we see the total volume awarded in the latest announcement, that would get us to this 12mln barrels already”, according to ING.


• Elsewhere, a significant explosion at a Mexican platform led to a temporary reduction in oil output by 700k BPD, although most of this output has already returned. US drilling activity continues to decline, with the number of active US oil rigs falling by five over the week to 540, the lowest number since early April 2022. This suggests more limited supply growth, a trend reflected in the EIA’s US crude oil supply forecasts. 


• This week, the market will focus on the EIA’s Short-Term Energy Outlook release on Tuesday, and OPEC and the IEA's monthly oil market reports on Thursday. Changes to demand forecasts in these reports will be of particular interest given the current macroeconomic uncertainty. The release of US CPI numbers on Wednesday will also be closely watched. 


• WTI Aug resides around USD 73.30/bbl (vs high USD 74.00/bbl) while Brent September trades just under USD 78/bbl with industrial sentiment dampened by the Chinese inflation data overnight.


• Over to metals, spot gold is flat around USD 1,925/oz and within recent ranges, as traders keep the powder dry for the US inflation metrics mid-week alongside the slew of central bank speakers scattered throughout the week. Base metals are mostly subdued but off worse levels, as sentiment in the complex was hit by the softer-than-expected Chinese inflation metrics which underscored a sluggish recovery. 3M LME copper is back on a USD 8,300/t handle after briefly dipping under the level.

10 Jul 2023 - 10:05- Research Sheet- Source: Newsquawk