EUROPEAN COMMODITIES UPDATE: Oil moves higher after Biden’s Saudi visit, metals edge up with industrials outperforming

Analysis details (10:53)

WTI and Brent front-month futures have been grinding higher since around the time Chinese participants entered the market as participants had the first chance to react to the fallout from President Biden’s trip to Saudi Arabia. To recap, no material nor immediate policy was agreed upon on any front, as expected. However, commentary from Prince Mohammed bin Salman did the rounds among traders which said “The kingdom will contribute to this field to increase its production capacity to 13mln BPD, and after that, the kingdom will not have any additional ability to increase production”. Energy Intel clarifies that this is in reference to Saudi’s 2027 capacity targets – plans that were flagged by Saudi Aramco in October last year. Spare capacity is the theme that keeps resurfacing. Energy Intel stated that we are in a situation where capacity is limited which is why the UAE and Saudi Arabia want to remain cautious about how and when it is used. As a reminder, according to IEA estimates, Saudi Arabia has a short-order capacity (able to add in less than 90 days) of around 1.2mln BPD, with the longer-term capacity predicted to be near 2.1mln BPD. Many participants warn that Saudi is unlikely to have the resources needed to meaningfully bolster production, whilst others also suggest little incentive for the Kingdom.  WTI August trades on either side USD 100/bbl (vs low 95.85/bbl) while Brent September topped USD 103.50/bbl (99.46/bbl). Something else to be aware of – Russia hopes to sign a strategic partnership pact with Iran, according to Interfax. Details remain light but "Russia and Iran have the capabilities to cooperate in order to reduce the repercussions of the sanctions imposed on them", according to Al Jazeera citing the Kremlin. Elsewhere, US senior envoy for energy security Hochstein said he expects gas prices to decline further towards USD 4/gallon and is confident there will be a few more steps in the coming weeks from OPEC in terms of oil supply, according to Reuters. Base metals gained attention overnight as iron ore rebounded alongside copper, with 3M LME prices heading back towards USD 7,500/t to the upside after dipping below USD 7,000/t last week. Finally, Spot gold is edging higher towards USD 1,725/oz in tandem with the downside in the Dollar.

18 Jul 2022 - 10:53- EnergyResearch Sheet- Source: Newsquawk