Oil still dominates commodity markets, thanks to the war in Ukraine, the mixed outlook for global demand as China slows and now question markets about the health of the US economy and consumption as the Fed goes all hawkish about lifting interest rates to put a lid on inflation.
Economists think oil prices have peaked for the time being and that – with the proviso that Russia and Putin refrain from any moves more stupid than we have already seen – prices should start easing.
But it is clear that inflation is now being driven by more than just energy costs – Friday’s ban by Indonesia on exports of palm oil (it’s the biggest exporter and producer) will only reinforce growing cost pressures for food and other products.
World oil prices continue to drift with the initial impetus from the invasion gone. The next OPEC+ meeting (including Russia) will be held on May 5 and will look at relaxing the group’s global production cap by another 400,000 or so barrels a day.
The May cut of 432,000 barrels a day will start on May 1 and with demand from China weak, there is some speculation the cut might not happen for June.
Last week we saw West Texas Intermediate (WTI) crude oil close lower on Friday in New York on weak demand from China amid Covid-19 lockdowns and expectations for weak global growth.
WTI crude for June delivery ended down $US1.72 to settle at US$102.07 per barrel. June Brent crude, the global benchmark, was down US$1.65 to $US106.65.
Brent fell 4.5% for the week and WTI lost 4.05%.
The drop comes as demand from China remains weak as the country isolates major cities, including the 25-million residents of Shanghai and regions to combat the spread of Covid-19.
Rising interest rates and the prospect of a half a per cent boost at the May meeting of the Federal Reserve also had an impact as did the cut to global growth estimates from the International Monetary Fund.
The return of Kazakh crude to global markets as the Black Sea oil terminal that handles 80% of the country’s oil exports returns to full service is also supporting lower prices, though protests in Libya are still shutting in more than 500,000 barrels per day of oil exports.
“One part of (falling prices) has been played by concerns about demand in connection with the rigid Covid policy in China, which threatens to paralyse the key business hub of Shanghai for a period of several weeks,” Commerzbank analyst Carsten Fritsch said in a note on Friday.
“Sharply rising bond yields, a firm US dollar and falling stock markets are likewise generating headwind. The declining supply of oil from Russia and the production outages in Libya are preventing any more pronounced price slide. The return of oil exports from Kazakhstan could bring some relief on the supply side,”
Precious metals were hit last week by the Fed’s change in tone, which has strengthened the greenback and bond yields.
Comex gold settled at $US1,934.30 an ounce, down just over 2.2% for the week. Gold hit a peak of $US2,078 an ounce in early March, in the immediate aftermath of Putin’s invasion of Ukraine.
Gold was down to around $US1,923 an ounce in Asia after the French election win by President Macron. Stockmarkets in Hong Kong and Shanghai fell sharply Monday (down 2% in the afternoon) because of a belief that the Covid situation in Shanghai was worsening.
Twitter and news media reports carried pictures of green steel mesh being erected on doors, windows and streets in parts of the huge city on the weekend where infections are being detected.
The Aussie dollar fell under 72 US cents and the euro and yen were again a bit weaker against the US dollar. US oil futures were down 3% in early afternoon trading.
Nickel prices at $US33,775 a tonne on the London Metal Exchange (LME) remained relatively firm. Copper has been volatile and is trading around $US10,300 a tonne on the LME. Comex it was down more than 5% at $US4.54a pound at Friday’s close.
