EUROPEAN COMMODITIES UPDATES: Crude buoyed by geopolitics whilst gold remains contained pre-FOMC

Analysis details (10:45)

• WTI and Brent March futures have continued grinding higher despite quiet news flow, with strength in the complex likely derived from the gain across stocks alongside geopolitical risk premia being woven in as the Russia-Ukraine situation remains heightened and ahead of the OPEC+ confab next week. Building on the current geopolitical risks Russia holds over 30% market share in Europe for both natural gas and oil. To alleviate some of this threat, the US said it is engaging with LNG suppliers to manage storage and diversion to Europe if needed. However, Saudi Arabia, Kuwait and Iraq would struggle to cover the shortfall in crude supply created by a blanket ban on Russian energy exports as they have already allocated their annual term supplies, according to Argus sources, while Qatar will meet with President Biden on Monday. Analysts at Rabobank suggest war could see oil hit USD 125/bbl amid elevated risk-premia and higher transit costs, whilst sanction (assuming all countries stop purchasing Russian oil) could see prices rise to USD 175/bbl. JPM believes oil could spike to USD 120-150/bbl in the event of sanctions. Meanwhile, the threat to Nord Stream 2 will not affect current production but risks disrupting future supply. Turning to OPEC, delegates cited by newswires suggested the producers will stick to the monthly plan of 400k BPD hikes at the upcoming meeting, with some suggesting that the current rise in prices is led more by geopolitical fears as opposed to strengthening demand-side fundamentals. WTI has claimed a USD 86/bbl handle (vs 85/bbl intraday) whilst Brent briefly eclipsed USD 89/bbl (vs 87.79/bbl intraday low). Ahead, the upcoming weekly DoEs may have a short-term impact on prices after the Private inventories printed a modestly larger-than-expected draw of 0.9mln bbls vs exp. draw 0.7mln bbls. Focus however will remain on Russia/Ukraine and the FOMC policy announcement. Elsewhere, spot gold wanes off highs after meeting resistance at USD 1,850/oz overnight, with the yellow metal awaiting the Fed. In terms of base metals, LME copper is on a firmer footing amid the risk tone but prices remain south of USD 10,000/t.

26 Jan 2022 - 10:44- MetalsEU Research- Source: Newsquawk