Commodity prices continued to drift last week as hope faded in the ability of a benign US Federal Reserve, supported by a re-opening Chinese economy keeping demand high, to shepherd the global economy gently towards a soft landing.
Friday’s stronger than forecast US consumer spending and the Fed’s favourite inflation figure, rattled Wall Street, sending the value of the US dollar to seven-week highs (and the Aussie dollar well under 68 US cents) which hit some commodity prices.
Gold took a direct hit, sliding Friday to the lowest level so far in 2023.
Spot gold dropped 0.6% to $US1,810.97 an ounce, while Comex gold futures fell 0.47% to $US1,810.20 an ounce. For the week the Comex front month shed 1.7% and is now close to falling back under the $US1,800 level
Oil though settled higher even though there are fears about weak demand from a slower global economy and more oil by Libya in the next months or so.
China though is not providing the re-opening bonanza that many thought in January.
Brent crude oil futures settled at $US83.16 a barrel, up 1.2%. West Texas Intermediate U.S. crude futures (WTI) settled at $US76.32 a barrel, rising 1.2%. Brent rose 0.2% for the week but WTI lost 0.3%.
Asian LNG prices fell a $US1 a million British Thermal units over the week to $US14.92, Newcastle thermal coal stopped the recent sell off and bounced near 12% to $US204.50 after getting as low as $US183 a tonne.
Premium Australian coking coal lost around $US40 a tonne to $US343 a tonne in Singapore where iron ore edged up 21 US cents to $US126.75. That is still well under the most recent peak of more than $US131 a tonne earlier this month.
Comex copper lost nearly 4% for the week, tipping back under $US4 a pound for the first time in weeks to close at $US3.9555. It’s still well above the start of year figure of $US3.76 a pound but it has fallen 27 US cents so far this month when earlier forecasts saw it rising.
Copper is supposed to be an indicator of the health of Chinese demand – that 4% fall last week tells us the Chinese economy is not very healthy.
There’s an update on Tuesday and Wednesday from the February economic activity statements. January’s showed that demand and activity has risen strongly but commodity prices this month are telling us that it may have cooled.
Comex silver fell more than 4% to end at $US20.86 an ounce.
Meanwhile the weekly report on oil and gas rig use in the US from Baker Hughes (the oil services group) showed another big fall last week.
That meant February saw the biggest fall in the number of oil and natural gas rigs in use across the US since June 2020 – the gas rig count falling to the lowest since April as drillers responded to weeks of low prices and cut production.
For the month, the total oil and gas rig count was down 18, falling for a third month in a row for the first time since July 2020.
Last week saw the oil and gas rig count drop seven to 753 in the week to February 24.
Despite last week’s rig decline, Baker Hughes said the total count was still up 103 rigs, or 15.8%, over this time last year.
US oil rigs fell seven to 600 this week, while gas rigs were unchanged at 151. That’s one above the most recent low of 599 rigs in January and under the most recent peak of 627 rigs late last year.
US oil futures were down about 5.3% so far this year after gaining about 7% in 2022. US gas futures, meanwhile, have plunged about 45% so far this year after rising about 20% last year.
Shale companies have been cutting their gas activity as prices have slumped (Closure of the Freeport LNG export plant after a fire last June has cut demand for gas and allowed, with the mostly mild winter, a big surplus of gas to build in the US).
Gas-focused producer Chesapeake Energy Corp said this week it planned to drop three drilling rigs this year and reduce well completions activities.
Rival Coterra Energy said it expected its oil volumes to grow by about 2% this year, while its gas output would decline 1% versus the prior year.
Finally, the continuing build up in US oil stocks is also pressing down on prices.
The US Energy Information Administration said last week US crude oil inventories as of February 17 were 9.1% above the seasonal 5-year average, but petrol inventories were 4% below the seasonal 5-year average, and distillate (mostly diesel) inventories were 12.4% below the 5-year seasonal average.
US crude oil production in the week ended February 17 was unchanged week on week at a 2-3/4 year high of 12.3 million barrels per day (bpd), which is only 0.8 million bpd (6.1%) below the Feb-2020 record-high of 13.1 million bpd.
