Energy markets fall as geopolitical risks ease
Highlights
Easing geopolitical risks saw energy prices come under pressure. Concerns over demand in China also weighed on sentiment in the metal sector.
Prices and commentary accurate as of 07:00 Sydney/05:00 Singapore/17:00(-1d) New York/22:00(-1d) London.
Ahead Today
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Market Commentary
Crude oil prices tumbled after a report suggested Israel won’t be targeting Iran’s oil facilities. The Washington Post reported that Israel’s Prime Minister Benjamin Netanyahu told the Biden Administration he’s willing to strike military targets rather than oil or nuclear facilities in Iran. Even so, it warned that the country is free to act how it chooses after more than a year battling Iranian proxy groups and fending off two direct long-range attacks from the Islamic Republic. The report eased concerns that oil supply would be disrupted, resulting in the diminishing geopolitical risk premium. Sentiment wasn’t helped after the IEA warned that the oil market faces a glut in early 2025, despite the potential for disruption to Middle East supply. It expects oil demand growth will slow to 1mb/d in 2025, half the rate seen in 2023. Most of this slowdown was driven by China, where cooling economic activity will see demand growth more than half to 500kb/d. This will see the market face a surplus of more than 1mb/d in 2024.
Easing geopolitical risks also weighed on global gas prices. The European gas benchmark futures were down as much as 4% as the market subsequently discounted the risk of supply disruptions. A broader conflict across the region had raised the prospect that Iran would disrupt the flow of gas through the Strait of Hormuz. Other supply risks were also in focus as EU energy minister meet to discuss gas imports from Russia. The end of a supply agreement between Russia and Ukraine in 2025 could see Europe forced to find other sources of gas amid a tight market. However, there are also moves by some EU members to ban imports of Russian LNG. North Asian LNG prices were steady, despite reports that two production trains at Malaysia’s Bintulu LNG plant are back online after an outage.
Iron ore futures fell as concerns shifted to rising supplies. Exports from Port Hedland in Australia set a record for the month of September. In Brazil, shipments for that month were the second highest on record. This comes ahead of production reports this week from the major exporters, including BHP, Rio Tinto and Vale. Expectations are that the major exporters will indicate recent supply disruptions are past them and the outlook for further gains are strong. This overshadowed reports that China’s Housing Ministry, the PBoC, Finance Ministry and the National Financial Regulatory Administration will hold a briefing on Thursday to promote the steady and health development of the property sector.
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Copper led the base metals lower as hopes of additional support measures in China quickly fade. This comes after a flurry of announcements from Beijing failed to provide any concrete details on fiscal stimulus measures. That is not expected until the National People’s Congress meets later this month. The market shrugged off data showing demand remains robust. China’s refined copper imports for September rose to 478kt, the highest level since May. Concentrate imports rose by 9% y/y.
Gold edge higher amid expectations of further buying from central banks. Mexico, Mongolia and Czech Republic sang the praises for bigger holdings of gold at the LBMA conference in Miami.
Chart of the Day
Despite a month-on-month fall, China's imports of copper in September remain strong on a seasonal basis. This matches other indicators which suggest physical demand has been picking up in recent months.