Falls in the price of two key commodities – oil and copper – last week told us something that investors were not hearing.
At the same time a surprise surge, then cooling in the price of nickel provided a timely reminder of the underlying weakness for key metals.
The message is that commodity markets are still dominated by the interaction of the value of the US dollar and worries about 2023 demand, especially with most economies expected to slow.
That’s why oil prices gave up ground last week as Brent and West Texas Intermediate (WTI) lost heavily on Thursday and Friday.
Copper also fell as the belief faded that the US dollar will continue falling as the US Federal Reserve leads a ‘pivot’ by central banks to a lower and slower pace of growth rates.
That ‘pivot’ idea now seems to be a distant dream.
The US dollar ended with a small gain for the week and the Aussie dollar finished above 66 US cents.
Brent fell 8.7% over the week – ending at $US87.62 a barrel and WTI dropped almost 10% to finish just over $US80 a barrel.
December crude oil fell 1.6% on Friday, adding to Thursday’s drop of 4.16% in what were two surprisingly negative days for both Brent and WTI.
With missiles falling in nearby Poland and killing two farmers, oil got a push higher for a brief while but the potential hot spot rapidly cooled as the United States quickly dismissed the theory of Russian responsibility.
Prices reacted more to the latest forecasts of OPEC, which cut its oil demand forecasts once again due to the slow reopening of China, still being strangled by its zero-Covid policy.
There have been more than 20,000 cases a day across China for the past six days which is a figure around six and a half month highs. Close to 25,000 on Saturday.
OPEC’s lowered demand forecast suggested a bleak picture of the global economy in2023 which weighed on investor sentiment.
Bloomberg reported on Friday that the G-7 countries plans to announce their Russian oil price cap this week – possibly Wednesday. That could be a positive, but also end up a negative with the market confused.
The price cap seeks to knee-cap Russian oil sales by banning G-7 companies from providing the shipping and services needed to ship Russian oil anywhere in the world unless that oil is sold below the cap price.
Bloomberg said the cap is due to come into force for new (ship) bookings after December 5.
The price cap embargo should support global oil prices since it is likely to crimp Russian oil exports and reduce the supply of world oil but would another 0.75% rate rise by the Fed in mid-December send prices lower?
Baker Hughes reported Friday that active US oil rigs in the week ended November 11 rose by 9 rigs to a 2-1/2 year high of 622 rigs. That’s more than tripled from the 17-year low of 172 rigs seen in Aug 2020, further suggesting an increase in US crude oil production capacity next year.
The gas rig count rose two to 157. The total US rig count is up 219 rigs from last year’s count of 563 with oil rigs up 162, gas rigs up 55 and miscellaneous up two.
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Metal prices are catching their breath after their strong rally since the beginning of the month with nickel zooming up and down in an unexplained mini repeat of the big price boom and bust earlier in the year.
All eyes are on China and its new measures to stimulate demand for metals as Covid cases continue to mount. Out of nowhere, nickel jumped mid-week to over the $US30,000 mark and ended Friday around $US25,300 a tonne for January metal.
That saw the metal down almost 6% over the week after cresting at $US30,223 a tonne. It had run up 20% in five days and fell 15% in the three days to last Friday.
LME copper eased a touch to around $US8,050 a tonne but Comex copper in New York shed more than 8% to end at $US3.63 a pound.
Iron ore prices almost breached the $US100 a tonne but could only manage to get to $US98.60 on Friday on the SGX (Singapore Exchange’s commodities market), up $US7.32 a tonne over the week.
Newcastle thermal coal rose to $US335 a tonne after sagging under $US300 a tonne.
The December price jumped 12% over the week while the January and February contract rose 7.7% to $US306.50 a tonne by Friday.
