Oil once again hogged the spotlight in commodities last week with world prices sliding a week after they jumped in the wake of the OPEC+ decision to cut its global production target by 2 million barrels a day.
Nervy investors also took aim at commodities like gold, silver, coal and iron ore with the US dollar firm for most of the week (the Aussie dollar dipped to a low of 61.94 US cents late in the week for example), falling Thursday in the wake of the inflation data and then rising on Friday and the end of the week.
Bond yields fell, then rose and then eased again as the situation in the UK remained fragile with the country’s Chancellor (finance minister) sacked, more of the unfunded tax cuts gone and investors still questioning the value of sterling.
As a result, oil prices fell Friday, dragging the commodity to its worst week in three months as thanks to those fears about a global recession hitting demand outweighed the impact of the OPEC+ production cuts.
West Texas Intermediate crude settled down 3.93% at $US85.61 a barrel on Friday. That was down 7.6% for the week, its first negative one in three. Year to date, West Texas Intermediate is up nearly 14%.
Brent crude also slumped, falling 3.11% to $US91.63 a barrel on Friday, for a 6.4% loss for the week. It’s Brent’s first negative week since the start of last month. Brent is up nearly 18% year to date.
Meanwhile after several weak weeks, oil rig use in the US jumped strongly last week, according to services group, Baker Hughes. Its weekly survey showed a rise of 8 in the number of oil rigs operating in the US last week to 610, up from 445 a year earlier.
Oil and gas rigs in the US rose by seven to 769, up from 543 a year ago. Gas rigs fell by one to 157, while miscellaneous rigs remained unchanged at two.
The latest, gloomy outlook from OPEC helped explain its production cut with Russia and smaller non-member states.
In its latest monthly report, the cartel lowered its demand growth forecasts for 2022 and 2023, by 460,000 and 360,000 barrels per day respectively.
OPEC pointed to the effects of inflation and the global economic slowdown as reasons for the revision.
Meanwhile gold was again hammered Friday and last week.
Comex gold closed with a loss on Friday as the US dollar rebounded from Thursday’s sell off after the America’s September consumer price inflation was seen as worse than expected.
Gold for December delivery closed down $US28.10 to $$US1,648.90 an ounce but edged up to around $1,650 an ounce in late trading. Comex gold lost nearly 3.5% for the week, and Comex silver slumped more than 10% to end at $US18.015 an ounce.
Comex copper thought managed a rare rise over the week to end at $US3.45 a pound, up 1.1%. Copper will be tested by the trade data from China today as well as the GDP, production and investment figures on Tuesday.
The United States on Thursday reported inflation rose at a higher-than-expected pace in September, with prices climbing by an annualized 8.2% last month, down from August’s 8.3% rise but above the consensus analyst forecast for an 8.1% increase, firming up expectations for more rate hikes from the Federal Reserve.
“The setup for gold has again deteriorated and to the frustration of many gold bugs, it’s high inflation which has read-through, resulting in lower gold prices,” Christopher Louney, commodities strategist at RBC Capital Markets, said in a note quoted by Reuters.
“Hotter-than-expected US inflation data continues to set the stage for Fed rate hikes, yields are high, the dollar is strong, the latter two of which are having the biggest negative implications for prices.”
The ICE dollar index was last seen up 0.93 points to 113.30
The yield on the US 10-year bond was last seen up 7.4 basis points to 4.024%
The stronger dollar and a 10-year yield over 4% is a big negative for gold, silver and other commodities where speculators are active.
For American consumers of oil, copper, gold, aluminium, its helping slow rising costs but bad news for consumers in Europe, China, Japan and elsewhere.
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After the London Metal Exchange’s consideration imposing restrictions on Russian metals, the Biden administration added its voice by revealing it was looking at banning or increasing tariffs on Russian aluminium.
Aluminium prices have jumped to trade around $US2,360 a tonne. Russia is the second largest producer of aluminium, behind China.
Iron ore in Singapore ended at $US93.90 a tonne for 62% Fe fines (Pilbara blend) delivered to northern China.
That was up on the day but down $US1.17 a tonne over the week as China staged soft lockdowns across a number of cities ahead of the party Congress this weekend and new outbreaks of Covid.
Thermal coal rose 4.5% over the week in Newcastle to end around $US397 a tonne for December futures (the current front contract). And December LNG futures in the JK market ended at $US32.50 a million British thermal units.
That was steady over a week in which Reuters reported that it looked like Chinese demand this northern winter (from November 15, the start of the winter heating season) would be weak and probably below 2021 levels). That report seems to have drained a lot of tension from that market and from thermal coal as well.
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In agricultural commodities, the latest report from the US Department of Agriculture (USDA) reduced its production estimates for wheat and corn for the 2022-2023 season due to lower crop acreage in the US and other major producers such as Ukraine.
Chicago wheat futures fell below the $US8.9 a bushel in Chicago on Friday, retreating from the three-month high of $US9.40 a bushel hit on October 10 following the latest USDA report (called the World Agricultural Supply and Demand Estimates or WASDE).
Domestic grain reserves have built up more than expected globally and US wheat exports will reach a 50-year low as low water levels along the Mississippi River are slowing the shipments.
At the same time, these supply issues, in addition to the disruption to the Ukrainian grain supply as well as increasingly adverse weather globally, have seen concerns re-emerge about a possible food crisis this winter.
