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 Hansen, Head of Commodity Strategy at Saxo Bank

Dubai, UAE, September 23, 2018:  The Bloomberg Commodity Index, which tracks the performance of 22 major commodity futures, rose from the ashes this past week. The 2% gain occurred after some early weakness after the US announcement of additional tariffs on $200 billion worth of Chinese imports. 

The broad-based recovery that followed in global stocks and currencies was driven by a combination of the US tariffs coming in at the lower 10% bracket and China, while responding with its own counter tariffs, announcing plans to cut taxes, lift consumption, and lowering its average tariff rate on imports from most of its trading partners as soon as October. 

While these developments may have helped sentiment, a proper de-escalation in China / US relations has yet to be seen. Given this, some caution is warranted unless the recent dollar weakness continues to provide support (more on that later in this update). 
 
Growth-dependent commodities such as energy and not least industrial metals received a boost. Since June, when the trade war began, it has been worries more than actual data pointing towards a slowdown that has driven the negative sentiment. Any sign of easing tensions is therefore likely to trigger renewed demand from consumers who had put off purchases in recent months.  

Brent crude oil tested key resistance after Saudi Arabia said it was comfortable with Brent above $80/barrel. The Saudi comment was probably driven by the realization that Opec members and Russia are unable to offset the ongoing slump in Iranian production; President Trump renewing his attack on Opec and high oil prices in a tweet failed to weaken the price. 

Trump's sanctions against Iran are the main reason behind the elevated prices currently seen. 

The European power market continued its wild gyrations with renewed strength in ECX Carbon emissions and rising coal prices driving a new surge in power prices across the region. 

Natural gas jumped the most since January and the near 7% rally on the week saw it return to face resistance once again at $3/therm. The rally was driven by lower than expected Chinese tariffs on LNG imports from the US and stocks being some 18% below the seasonal average with just a few weeks left before winter demand sets in. Rising US production this year has been met with rising demand and rising exports. 
 
HG copper jumped more than 6% on China's spending pledge and the move helped support a recovery among the semi-precious metals – not least palladium and platinum with the latter seeing its discount to gold drop to a six-month low from a record just a couple of weeks ago. Gold took some comfort from the weaker dollar but struggled to keep up with headwinds arising from higher US bond yields, the September 26 Federal Open Market Committee meeting, and a weaker JPY against the dollar. 

Gold's struggle to keep up with a recovery among other metals was seen through the lower ratios against both copper and platinum. 
 
The battle for a shrinking global liquidity pool will heat up over the coming months and the US needs to attract an increased amount of funds to cover its growing deficit. The weaker dollar despite rising US bond yields this past week may indicate that investors worried about rising US funding requirements no longer find the current yield levels attractive at the current dollar valuation. 

These developments may eventually see the greenback weaken, removing some of the recent pressure on emerging market countries struggling with their dollar debt at a time of rising interest rates. If this materializes, some profitable months may lie ahead for commodities as investors and funds turn short positions back into longs.  

Gold has been rangebound around $1,200/oz for the past month while its room for maneuvering, as per the chart below, continues to narrow. At this point we maintain a neutral outlook while waiting for a trigger strong enough to take it out of the current range. The combination of a record short and some dollar buying fatigue leads us to believe that the upside eventually will be challenged. Key levels to look out for to the upside are $1,212/oz, $1,224/oz and particularly $1,238/oz. 

A break back below $1,188/oz, however, could once again see the metal's resolve being tested. 

Crude oil remains supported and at risk of breaking higher as supply concerns intensify. Despite increased production from some Opec members and Russia together with robust US export sales of crude, the market is turning increasingly tight. Iranian exports have already witnessed a sharp reduction and are likely to fall further when US sanctions come into effect in November. 

Opec and its allies meet in Algiers on September 23 to discuss oil market developments. This follows the June Opec+ meeting, which saw the production cap deal nearly abandoned despite Iranian objections. With Saudi Arabia, Iraq, and Russia producing at will, a contentious meeting high on politics and low on results awaits. The major factor here is Tehran, as Iranian leaders feel betrayed and have said they will veto any Opec decision that harms their country. 

President Trumps growing fondness for trying to impact markets via Twitter fell short of halting oil's ascent after he once again went on the attack against Opec saying that they “continue to push for higher and higher oil prices”. With Trump's Iran sanctions expected to force a minimum drop of 1 million barrels/day there is little Opec and its allies currently can do to stem the risk of rising prices. The best they can hope for is that the short-term supply deficit will not push prices so high that it hurts the medium- to longer-term outlook for global growth and demand for oil. 

 



Posted by : GoDubai Editorial Team
Viewed 8046 times
Posted on : Sunday, September 23, 2018  
Replication or redistribution in whole or in part is expressly prohibited without the prior written consent of GoDubai.com.
Previous Story : Barring Oil Or Geopolitical Risks, Gulf Banks' Financial Profile Should Stabilize in 2019
Next Story : Why the Modern-Day Oil and Gas Industry Needs Millennials to Survive?
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
Let It Glow
Filorga Launches FLASH-NUDE Collection
Let All Your Photos Be Merry & Bright
The Rado DiaMaster Petite Seconde Automatic COSC The Rado watch at the top of th...
HP ProBook x360 11 G3 and G4 Education Edition
Chrono 4 Grande Taille - an extra-special timepiece
Tips and Tricks to Wash the Perfect Whites
30 Years of Ryder Cup Heroes Confirmed for the 30th Edition of the Omega Dubai ...
PopSockets launches a new collection with crystals from Swarovski, the must-have...
Nike Dubai, the largest Nike store in the MENA region, opens its doors in the Du...
Maintain Healthy Skin Year Round
American Eagle Is the Go-to Destination for Gifting This Holiday Season'
Free gold coins at Malabar Gold & Diamonds Festival
MIDO Baroncelli Lady Day & Night collection
Akshay Kumar Stuns Audiences With Transformation Into Surprising Look for 2.0
GAZOO Racing Wins Australia Rally at FIA World Rally Championship
Golden Mile Galleria's ‘A Cultural Flair' attracts hundreds of art lovers to Pal...
Newby Teas Launches Advent Calendar For Christmas 2018
Tissot Chemin des Tourelles
The Interiors Gift Guide with Home and Soul
Growth and inclusivity drive Avaya's channel strategy for 2019
Time For Enchanting Moments
Etihad Museum displays the UAE flag using 3D lighting
Holiday Handbags | GUESS
BharatMatrimony launches office in Dubai targeting 2 Million Indians
HE Sheikh Nahayan Mabarak Al Nahayan, UAE Minister of Tolerance opens In-Vitro F...
Kartik Aaryan attends Danube bash
France Attractiveness Scoreboard 2018 Released
UAE Exchange celebrates UAE National Day in association with RTA
Ring in a dazzling festive season at Ibn Battuta Mall
International supervisory community meets to discuss challenges ahead for global...
UOWD's quality management expert wins ASQ-UAE Quality Professionals Award
Dubai's Most Magical Festive Market Opens at Dubai Festival City Mall
Chinese Manufacturing Companies to Highlight Trade Opportunities in Middle East
Global Knowledge Index 2018 and The Future of Knowledge: A Foresight Report shin...
Festive Gift Sets from Bubble T
UAE Carriers announce aircraft formation to celebrate 47th National Day and Year...
Five-Star Euro NCAP for Jaguar's Electric I-PACE
Dubai Customs wins 3 awards from Ideas UK 2018
Spinneys Dubai 92 Cycle Challenge | Road Closure Timings
Voting on UAE Superbrands 2019 Begins
FBMA and 47 Emirati women celebrate UAE National Day
Al Hosn Now Open to the Public
Get Ready for Party Season with Lottie's new make-up hits
Middle East economies are still dominated by oil sector development
New ACH145 Mercedes-Benz Style Cabin Model Highlights First Presence at MEBAA fo...
Green Hope's November Advocacy
National Hospital offering special UAE National Day Health Package for AED 47th
Michael Kors Collection Transeason 2019 Press Presentation
BMW Group sales increase in October