Once again events in the oil market – led by the looming Fed decision on interest rates this week and its impact on the value of the US dollar – have dominated commodity markets, along with the assistance of the price cap on Russian oil and growing concerns about weaker demand next year.
China’s continuing easing of Covid restrictions is no longer a positive for the oil market. Chinese exports and imports slumped sharply in November thanks to weaker demand (even though China boosted oil imports in November).
There are worries China’s oil demand in 2022 will by lower than 2021 – the first time that has happened. And there some fears are held about 2023, even though most forecasts reckon the Chinese economy will do a bit better next year than the rest of the developed world.
As a result, oil prices settled lower in volatile trading on Friday, with both global benchmarks recording their biggest weekly falls in months, as those growing recession fears overcame worries about a shortage in supply thanks to the EU price cap, OPEC+ production cap and the impact of weak economic data from China, Europe and the United States.
US West Texas Intermediate crude futures settled 44 cents lower at $US71.02 a barrel, a new low for 2022. Brent crude settled 5 cents lower at $7US6.10 a barrel.
Both crude benchmarks posted weekly losses of more than 11% each. It was the biggest weekly decline since April for WTI futures, and since early August for Brent
Seeing oil was trading around $120 a barrel mid-year, the drop is a nasty 40% – plus.
Traders said the market structure for WTI futures contracts switched to trade in contango over the next year for the first time since November 2020, with contracts for near-term delivery cheaper than one year later. Brent contracts have also switched to trade in contango over the next six months.
A commodities market in contango suggests traders have less worry about the current supply situation due to weakened demand, and encourages traders to put barrels in storage (by storing on land in tank farms or hiring more tankers).
The hundred or so tankers that Russia is reported to have bought this year to try and avoid sanctions and the EU/US/Australia price cap of $US60 a barrel, might end up being a floating storage system rather than transport if buyers can get sanctions-free oil elsewhere.
The average price US petrol price was $US3.33 a gallon on Thursday, down from its mid-June peak of more than $US5 a gallon. That’s just under what it cost a year ago, when the national average was $US3.34.
On Wall Street, the energy index recorded a seventh straight session of losses, its longest losing streak since December 2018, as oil prices looked set for weekly losses on recession concerns.
Meanwhile the number of oil rigs operating in the US fell by two last week, according to data from energy-services firm Baker Hughes.
The count fell to 625 in the seven days through Friday, Baker Hughes said. A year earlier, the number was 471 oil rigs.
Oil and gas rigs in the US fell by four to 780. Gas rigs dropped by two to 153, while miscellaneous rigs remained unchanged at two.
In the same period of 2021, there were 105 gas rigs and no miscellaneous rigs in operation. Overall, there were 576 rigs operating a year ago.
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Gold closed higher Friday, staying above the $US1,800 mark for a second day as the dollar was mostly unchanged.
Comex gold for February delivery closed up $US9.20 to settle at $US1,810.70 an ounce. That still left it down 0.11% for the week.
The rise follows on three-straight days of gains as the dollar and bond yields moderated ahead of this week’s meeting of the Federal Reserve’s that is expected to end with another hike to US interest rates.
Futures traders have a half a per cent rise pencilled in instead of the 75-point hikes imposed in four prior meetings this year.
However, strength in gold has not been matched by investor interest, with big buyers choosing to remain on the sidelines.
Total investor holdings are still down significantly, according to Comex markets stats.
Gold-backed exchange-traded-products in particular have suffered this year as investors allocations have fallen as prices have fallen from earlier peaks.
Year-to-date gold holdings are down by over 4 million ounces or over 120 tonnes, with tonnages having fallen more than prices (at -4% while the Comex gold price are down 1.15% year to date).
Comex silver rose for another week, adding a solid 2.16% to end the week at $US23.53 an ounce, getting some business when gold went over $US1,800 an ounce.
Comex copper also rose, up 0.7% at $US3.87 a pound, up a tiny 0.04% for the week.
London Metal Exchange copper traded above $US8,500 a tonne, nickel was up to $US31,000 and zinc was around $US3,240.
Iron ore finished at $US111.65 a tonne for 62% Fe fines on the Singapore Exchange on Friday. That was a gain of around 5% for the week.
Newcastle thermal coal edged up 2.9% to $US402.50 a tonne for the December contract.
