GoDubai
  
  
  
  
Citylife > Press Release
  Home Contact us Add to Favourites
Most Recent Postings
More Press Releses
Featured Sections

Event Finder
A daily roundup of exhibitions, promotions and other events in Dubai and the rest of the Emirates.
Submit an Event
Latest Dubai Press Releases >>

 
  Share

By Ole S Hansen, Head of Commodity Strategy at Saxo Bank

Dubai, UAE, June 3, 2018:  Commodities traded lower this past week with losses being led by the energy sector while both the metals and agriculture sectors were mixed. Impacting commodities both directly and indirectly were the unfolding political crises in both Spain and Italy, together with Donald Trump's decision to slap duties on imports of steel and aluminium from US allies while also preparing a range of tariffs on goods from China. 

Both events helped increase stock market volatility while sending core bond yields lower and the dollar higher. At the same time, they also raised additional concerns about the trajectory of global growth, which is already showing signs of slowing. 

Crude oil once again attracted most of the headlines as the market continued to adjust expectations after Saudi Arabia and Russia opened to the possibility of raising production. A significant widening of WTI crude oil's discount to Brent also received some attention with domestic issues within the US being the main driver behind the current widening. 

Gold and silver both remained stuck around $1300/oz and $16.5/oz with the above-mentioned news so far having a net neutral impact on the two metals. A small recovery in platinum, together with a record fund short, supported a third attempt to break the current downtrend while copper remains stuck in the range that has prevailed for more than six months now. 
 
Soft commodities provided some fireworks with drought in Texas and the impact of the first Atlantic storm of the season driving cotton to a four-year high before being capped by worries that a trade war with China could negatively impact US exports. The several months long rally in cocoa has run out of steam with speculative longs heading for the exit after concerns about tighter supplies from producers began to ease. 

The grain sector also retraced some of its recent strong gains with emerging global trade tensions potentially threatening exports. Mexico and China are the biggest buyers of US-produced corn and soybeans. Adverse (dry) weather around key growing regions from Australia to Russia, Europe, and not least the US is likely to provide some underlying support. Position adjustments from hedge funds holding the biggest seasonal net-long since 2014 are likely to provide plenty of volatility in the weeks ahead as they add and reduce positions in response to market developments.  

Crude oil, led by Brent, has recovered some of the steep losses that followed the previous week's announcement from Russia and Saudi Arabia that they were considering lifting production. This primarily came about to replace the involuntary loss of approximately 600,000 barrels/day from Venezuela and Angola since the current production cut deal was introduced at the beginning of 2016. 

In addition to Saudi Arabia and Russia, only Kuwait and the UAE are currently able to contribute with higher production and this could potentially see some intense discussions at the June 22 meeting in Vienna, not least from countries currently not able to increase production. Apart from 90 minutes on June 14 when Saudi Arabia and Russia's finest football players meet at the opening game at the 2018 World Cup in Moscow, these two countries have played like one team since late 2015. 
 
The recent decision to work towards increasing production came after the first signs of rising crude oil prices was beginning to potentially hurt demand. It was mentioned by the IEA in their monthly Oil Market Report for May where they expected to see a slowdown in global demand growth in the second half of 2018, largely due to higher oil prices. The negative demand growth impact of rising crude oil prices could potentially make it easier to “sell” the idea of raising production to the other members of the Opec/non-Opec when they all meet in Vienna on June 23.

While crude oil could be settling into a range while we await the decision, the gulf between Brent and WTI crude continues to widen. The spread between the two global benchmarks now exceeds $10/barrel – the widest in more than three years. As the smoothed-out chart below shows, around two-thirds of the spread widening is related to the cheapness of WTI at the delivery hub at Cushing, Oklahoma, relative to the export terminals at Houston. 

Increased US crude oil production, currently up year-on-year by 1.4 million barrels/day to a record 10.8 million, has resulted in key pipeline infrastructure running close to full capacity. In addition, export terminals along the Gulf coast are also challenged in shipping oil out fast enough.
 
While these developments have yet to slow production growth, there is a risk that it could happen. Not least considering that relief from improved infrastructure through the construction of new pipelines is not going to arrive until sometime next year.

The combination of WTI's widening discount to Brent and the potential of increased supply is likely to keep the upside limited ahead of Opec and non-Opec meetings. Longer-term charts on Brent crude could indicate that the market potentially is settling into a $71/b to $81/b range. 

While supply issues will continue to set most of the agenda, not least considering the so far unquantifiable impact of US sanctions on Iran's ability to export, the impact on demand from slowing global growth momentum cannot be ignored.

Precious metals, led by gold, had another range-bound and on balance disappointing week. Earlier support from rising political risks in Europe, global trade tensions, stock market weakness and lower bond yields all failed to catapult the metals higher with the dollar continuing to show signs of strength. The failure to break the 200-day moving average on gold at $1308/oz subsequently led to some renewed weakness ahead of the weekend.

The strong monthly US job report for April which showed a bigger-than-expected jump in new jobs and hourly earnings only helped to confirm that the Federal Open Market Committee will raise its Fed funds target rate again when it meets on June 13. On most previous occasions during this present rate hike cycle gold has tended to weaken ahead of FOMC meetings, only to rally strongly afterwards.
 
The net-long position held by hedge funds in COMEX gold futures has dropped to a 10-month low while the open interest is at a five-month low. Both observations reflect a market currently being given limited attention with many sitting on the fence to find out how the market will react to a break either below $1286/oz support or above $1308/oz resistance.

 



Posted by : GoDubai Editorial Team
Viewed 8564 times
Posted on : Sunday, June 3, 2018  
Replication or redistribution in whole or in part is expressly prohibited without the prior written consent of GoDubai.com.
Previous Story : Tristar Group's Jebel Ali warehouses receive DMCC's 5-star rating for second and third consecutive y...
Next Story : RDIF, Mubadala Petroleum and Gazprom Neft announce a joint venture to develop Siberian oil fields
Email this article Print this article

Share this article with your friends and followers
NewsVine

Comments

Back to Top  
Most Viewed Press Release posted in the last 7 days
Michael Kors Unveils Spring 2019 Michael Kors Collection Ad Campaign
Flaunt your gravity-defying hairstyles to become the face of our brand
Linda Meredith Luxury Skincare Now at Coya Spa, Mirdif
City of gold celebrates the joy of new year with amazing wins this Dubai Shoppin...
Facial Peels – What Are They?
St. Valentine's Day
Sony Unveils Newest Products and Introduces Latest Efforts from Entertainment B...
Hask's Winter Care for Your Hair
New Lamborghini Huracán EVO: elevation of technologies for amplified drivin...
Celebrate Valentine's Day with GUESS
Start the Year with some TLC and enjoy the fantastic offers at The SPA at Steige...
Corum Heritage Eleganza- A luxury feminine piece
Morison Menon strategically integrates with Kreston International and rebrands ...
Trend Alert: Stay Timeless and Classy With a D1 Milano Timepiece
Rolls-Royce Motor Cars Achieves Historic Business Record
Tissot Chemin des Tourelles
Nokia 8 Sirocco blends premium craftsmanship and latest innovation with Android™...
Gharib Lands Al Shira'aa Double As One-Star Event Comes To A Close
LG Electronics' Promise of AI for an even Better Life Delivered at CES 2019 Keynote
Continental Commissions First Driverless Tyre Test Vehicle
Hankook 24 Hours of Dubai kicks off the 2019 season for Audi
Joyalukkas Shopper wins BMW Car in the ongoing DSF Mega Promotion
19 reasons to fly with British Airways in 2019
Malabar Gold DSF Winner Photo for Release - Babul Hussain
HP Opens CES 2019 with Stunning Displays, PCs and Security Innovations
Malabar Gold & Diamonds opens a new showroom in Millennium Dubai Airport Hotel t...
Celebrate the Month of Love with a Brighter Smile at The Smile Bar
Eberhard & Co. Main Sponsor of Winter Marathon 2019
Global Village presents Scheherazade, a timeless tale of intrigue and adventure
Longchamp Spring/summer 2019 Show
Samsung Smart TVs to Launch iTunes Movies & TV Shows and Support AirPlay 2 Begin...
Epson to participate at SGI 2019 for the 10th year highlighting high value solut...
Turkish Airlines reached the 80.2% Load Factor in December 2018.
Always take the front row with this 7.2” supersized smartphone screen
Bring out the Chef in your little ones at 800 Degrees Pizzeria
Third Edition of Al Shira'aa International Horse Show Concludes with Thrilling Finale
UAE Team Emirates Kick Start 2019 With a New Squad, New Kit and New Ambitions
Shane Breen Wins Grand Prix Qualifier at Al Shira'aa International Horse Show fo...
Young Al Owais Ends Al Shira'aa One Star With Victory
Smart City Services at Silicon Park Reach Advanced Level of Completion
Dubai Festival City Mall's Festival Bay transformed with a new, larger-than-lif...
Al Wahda Mall thrilled to announce launch of new outlets
UAE tap water is safe to drink – just keep storage tanks clean
Eberhard & Co. Gilda makes an extraordinary Valentine's Day gift
Celebrate Valentine's Day With a Quintessential Timepiece From D1 Milano
Cadillac announces Middle East arrival of the 2019 ATS model
Introducing Burberry Bespoke Fragrances
Canadian University Dubai (CUD) launches degree program in Climate Change in par...
Union Coop Among the ‘Elite' Sponsors of The FAZZA Championships for People of D...
Always Breaks the Guinness World Record for a Cause