Oil ended up dominating the end of the week on Friday and will drive prices for some of this week after Russia said it will cut production by 500,000 barrels a day next month.
Oil’s late run higher overshadowed a week in which those returning fears about interest rates, the Fed and economic growth also hit commodity prices.
The earthquakes in Turkey and Syria have also had an impact on the oil market by disrupting the flow of oil out of the Black Sea, though shipments are expected to resume normal levels in the next week or so.
Russia’s cut is around 5% of its daily output and the news saw US West Texas Intermediate (WTI) crude futures add 2.13% on Friday to settle at a session high of $US80.33 a barrel. Brent was up $US1.89 to $US86.39 a barrel by Friday’s settlement.
For the week, WTI was up 8.63%, its strongest week since October 7, when WTI gained 16.54%. This was also its first positive week in three weeks.
Brent added more than 8% last week as well.
Like equities, oil and commodity markets face the possible fallout from this week’s January inflation data releases, especially the Consumer Price Index (CPI) tomorrow.
Investors rediscovered their previous nervousness about inflation and interest rates so a jump in oil and petrol prices as a result of the Russian cuts, is the last thing they will want to see with the US inflation data focusing minds this week.
Western countries had capped the price of Russia’s crude over its invasion of Ukraine and the production cut seems to be Russia’s reply.
Russian Deputy Prime Minister Alexander Novak made the announcement on Friday after allied Western countries had implemented another price cap, this time on Russian oil products, earlier in the week.
The cut also came only days after the Organization of the Petroleum Exporting Countries and allied producers (called OPEC+ and including Russia) decided to retain its current oil output cut agreement.
“As of today, we are fully selling the entire volume of oil produced, however, as stated earlier, we will not sell oil to those who directly or indirectly adhere to the principles of the ‘price cap,'” Novak said in a statement. Novak has been Russia’s lead participant in OPEC+ meetings.
A Russian government source on Friday said Russia did not consult with the OPEC+ group on its decision to reduce its output, Reuters reported separately.
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The number of oil rigs operating in the US reversed the previous week’s fall to rise by 10 last week, according to energy-services firm Baker Hughes.
The count rose to 609 from 599 the week before and 516 rigs a year earlier.
Oil and gas rigs in the US gained two to 761. Gas rigs dropped by eight to 150, while miscellaneous rigs remained unchanged at two.
In the same period of 2022, there were 118 gas rigs and one miscellaneous rig in operation.
Overall, there were 635 rigs operating in the US a year ago.
On Wednesday, the US Energy Information Administration reported that commercial crude stockpiles increased by 2.4 million barrels last week.
“The large build in inventories over recent weeks has hurt confidence in oil demand, as the Federal Reserve looks to continue raising rates,” ANZ analysts said in a note on Friday. “This offset further supply disruptions.”
“With most producers maintaining a cautious approach on investment, there is a significant risk that US supply will fail to meet expectations,” according to the report. “A tight market and high prices look increasingly likely,” the ANZ analysts forecast.
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Base metals are beginning a consolidation phase as disruption at some copper mining sites in Peru subsides, indicating a gradual resumption of production.
At the same time, the London Metal Exchange (LME) reported an increase in aluminium and zinc inventories in its Asian warehouses, although it should be noted, these inventories are relatively low.
LME aluminium was trading at around $US2,425, copper at $US8,950 and zinc at $US3,180.
Comex gold was all but unchanged (down just 0.1%) over the week at $US1,874.80 for April metal. That was down $US4 an ounce on Friday.
Comex silver for March delivery fell 6 cents to $US22.08 an ounce was down 1.3% for the week. And Comex March copper fell 8 cents to $US4.02 a pound to be down 0.9% for the week.
In Singapore, iron ore ended all but unchanged at $US124.50 a tonne for 62% Fe fines ($US124.86 a tonne the previous week0 but Australian hard coking coal futures jumped around $US20 a tonne over the week to $US369.33 a tonne.
SGX coking coal futures prices are up a very solid 25% so far this year.
In Newcastle, Australian thermal coal fell another 4% to end at $US226 a tonne on Friday for February delivery and by just over 7%, to $US206 a tonne for March coal.
