Profit taking pushes metal and energy prices lower
Daniel Hynes
Senior Commodity Strategist | helping investors and companies navigate macro, political, economic & environmental issues
Highlights
More hawkish commentary triggered a risk off tone across markets. A stronger USD was an added headwind for commodity markets.
Prices and commentary accurate as of 07:00 Sydney/05:00 Singapore/17:00(-1d) New York/22:00(-1d) London.
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Market Commentary
Gold fell sharply on the prospect of higher for longer rates. The latest Fed minutes showed officials are in no rush to cut rates. In fact, several questioned if the higher-for-longer policy was restrictive enough. A stronger USD also weighed on investor demand. Even so, speculators have maintained bullish views. Net long positions held by investors are near their highest levels in more than three years, according to CFTC data.
The risk-off tone across markets triggered a sell-off in the oil market. Brent crude and WTI both fell sharply on the release of the Fed minutes. This reversed earlier gains after data showed a pick-up in demand. EIA data showed implied gasoline demand rose to 9.32mb/d last week. Gasoline inventories also fell 945kbbl over the week. A rise in commercial inventories of crude oil of 2,818kbbl was shrugged off after EIA’s adjustment factor, seen as a margin of error, rose to its highest since November. The challenging geopolitical backdrop is keeping traders on edge. The US said Houthis have weapons that can reach the Mediterranean Sea, raising concerns about potential strikes on shipping beyond the Red Sea and Gulf of Aden. OPEC’s next move on its supply policy is also hovering over the market. Daniel Hynes discusses the issues with Bernard Hickey on today’s 5in5 with ANZ podcast.
North Asian LNG prices extended recent gains as consumers fret about supply shortages. Summer buying has been strong, as a heatwave across the region is raising fears of stronger cooling demand. India’s Petronet LNG CEO, Akshay Kumar Singh, said the heatwave is boosting LNG demand from the power sector and is expected to remain strong in the coming two months. He warned that India’s overall demand could rise from 22.1mt last year to around 26–27mt. In another sign of strong demand for natural gas, Japanese shipping firm, Mitsui OSK Lines, is considering adding tankers to its fleet. It currently operates 97 LNG carriers but is looking to increase that to 150. European benchmark futures were higher, as concerns rise of increasing competition for LNG cargo. This has already led to a slower build-up of inventories.
Profit taking accelerated in the copper market amid the risk-off tone across markets. The red metal has gained more than 22% this year, with the rally accelerating in recent weeks as a rush of investors bet on a tightening global market. However, signs of lacklustre demand in China were enough for some to close out bullish positions and lock-in profits. Chinese copper rod producers have cut or stopped production due to slowing sales, according to Mysteel Global. Copper fell more than 4% during the session, leading the base metal sector lower.
Iron ore jumped to its highest level since early March after signs of recovery in China’s steel market. Spot prices for steel rebar are into their sixth consecutive week of gains. Inventories of the construction material have also drawn down to lower-than-average levels for this time of year, according to Steelhome data
Chart of the Day
EIA's weekly report showed US gasoline demand rose for the third consecutive week