Commodity markets ended yet another week (holiday shortened with light volumes, mind you) with the mysteries of the oil market dominating.
West Texas Intermediate (WTI) crude oil fell to its lowest since early 2022 on Friday as the European Union continues negotiations on a price cap for Russian oil, while China’s reported new Covid-19 hit a series of new record highs on Friday, Saturday and Sunday.
The cut by China’s central bank announced on Friday in the reserve requirement ratio (RRR) for banks might release around $US70 billion next Monday for lending, but it’s an acknowledgement the economy is weakening thanks to the impact of the third wave of Covid infections and the scattergun measures China’s taking to try and bring it under control.
Hopefully the 0.25% Reserve Rate Reduction (RRR) announced in China on Friday and the billions of dollars freed up for property companies last week will convince commodity markets like oil, coal, LNG, copper, iron ore and other metals, that China’s faltering rate of growth is being addressed, especially in property and construction.
But traders in the oil market knew about the RRR cut on Friday night and it failed to really move the market and prices ended lower.
WTI crude for January delivery closed down $US1.66 to $US76.28 a barrel, the lowest since the first days of the year on January 3.
Brent crude, the global benchmark, was down $US1.59 to $US83.75.
The drop comes as European talks on a price cap for Russian oil continue, with little agreement yet shown as members argue for their preferred targets.
“A G7-sponsored price-cap plan on Russian oil looks dead in the water with EU countries struggling to agree on a level, the result being either no cap or a level so high that it will not have any meaningful impact on supply,” Saxo Bank said in a commentary on Friday.
New Covid-19 infections are surging in China, which the weekend reported a record daily number of more than 35,000 new infections.
The oil market is waiting for the European Union to decide on the price price cap for Russian oil. A price range between $US65-$US70 a barrel is reported to be the likely figure for the cap.
Seeing Russian oil is already trading at a significant discount (around $US20 a barrel) to Brent (Urals crude, the main Russian type, is currently trading at $US67 a barrel). This suggests the proposed cap won’t have too much impact on Russian production. Of greater impact could be the reported cut in purchases by India in recent weeks
Metal markets were weak late in the week thanks to new health restrictions in China because of the growing Covid outbreak.
Covid is pushing the Chinese authorities to once again confine several cities and districts. This week’s surveys for November of manufacturing activity (and services) will underline the weakness in China’s economy, especially demand.
Copper was trading slightly above $US8,000 a tonne on the LME and Comex metal was off a touch for the week by around 0.5%, closing at just under $US3.62 a pound.
Comex gold is treading water at $US1,755 an ounce, up less than 0.20% for the week.
Iron ore again went close to the $US100 a tonne level for 62% Fe fines delivered to northern China, but ended the week at $US98.85 a tonne, up around $US1.10 over the week.
