The commodities feed: Oil supply risks linger

ING Global Economics Team ING Economic and Financial Analysis

Oil prices came under further pressure yesterday despite supply risks from Canada. Constructive fundamentals suggest the move lower is overdone.

Energy – Canada supply risks linger

The sell-off in oil continued yesterday. ICE Brent settled 1.69% lower on the day leaving it just above US$81/bbl and the weakest level since early June. Having broken through the 50-day and 200-day moving average earlier this week, there has been little support for the market since. Weak Chinese demand adds to the concerns for the market. However, the market is nearing oversold territory and we still believe that the fundamentals support prices moving higher from current levels over the remainder of the third quarter on the back of a deficit environment.

Price action in early morning trading today has been more constructive. This is after API data overnight showed that US crude oil inventories fell by 3.86m barrels over the last week, more than the roughly 2.8m barrel draw the market was expecting. In addition, declines were also seen on the product side. Gasoline and distillate inventories fell by 2.77m barrels and 1.5m barrels respectively. The more widely followed EIA inventory report will be released later today.

Oil supply risks from wildfires in Canada continue to grow. While wildfires have already forced some producers to curtail production, these fires still threaten a large amount of supply. Bloomberg reports that 388k b/d of oil production is within 10km of fires that are at least 10 hectares in size. The wildfires have provided some support to the WCS-WTI differential this month. The discount has currently narrowed from around $16.40/bbl to $14.70/bbl.

Metals - LME lead inventories surge

LME lead inventories rose by 44,475 tonnes to 253,550 tonnes yesterday, the highest since 7 May. The increase was driven by warehouses in Singapore. Meanwhile, lead cancelled warrants fell by 750 tonnes to 58,200 tonnes, while on-warrant inventories rose by 45,225 tonnes to 195,350 tonnes.

The latest data from the World Steel Association (WSA) shows that global steel production rose marginally by 0.5% YoY to 161.4mt in June, as higher output in the European Union (+5.1% YoY) was offset by declining production from Japan (-4.2% YoY) and South Korea (-7.2% YoY). Cumulative global steel output remained flat at 954.6mt in the first half of the year. Chinese steel production reported a marginal increase of 0.2% YoY to 91.6mt in June, while cumulative production fell 1.1% YoY to 530.6mt in the first six months of the year.

The latest COTR report shows that investors trimmed their net long position in copper by 10,706 lots to 71,228 lots for the week ending 19 July, the smallest net long held since 23 February. This is due to concerns over China’s weak consumption and surging global inventories. Similarly, net bullish bets for aluminium fell by 12,416 lots to 109,894 lots, while the net long in zinc fell by 3,145 lots to 27,595 lots.

Read the original analysis: The commodities feed: Oil supply risks linger

Author

ING Global Economics Team

ING Economic and Financial Analysis

From Trump to trade, FX to Brexit, ING’s global economists have it covered. Go to ING.com/THINK to stay a step ahead.

EUR/USD hits two-day highs near 1.1820

EUR/USD picks up pace and reaches two-day tops around 1.1820 at the end of the week. The pair’s move higher comes on the back of renewed weakness in the US Dollar amid growing talk that the Fed could deliver an interest rate cut as early as March. On the docket, the flash US Consumer Sentiment improves to 57.3 in February.

GBP/USD reclaims 1.3600 and above

GBP/USD reverses two straight days of losses, surpassing the key 1.3600 yardstick on Friday. Cable’s rebound comes as the Greenback slips away from two-week highs in response to some profit-taking mood and speculation of Fed rate cuts. In addition, hawkish comments from the BoE’s Pill are also collaborating with the quid’s improvement.

Gold climbs further, focus is back to 45,000

Gold regains upside traction and surpasses the $4,900 mark per troy ounce at the end of the week, shifting its attention to the critical $5,000 region. The move reflects a shift in risk sentiment, driving flows back towards traditional safe haven assets and supporting the yellow metal.

Crypto Today: Bitcoin, Ethereum, XRP rebound amid risk-off, $2.6 billion liquidation wave

Bitcoin edges up above $65,000 at the time of writing on Friday, as dust from the recent macro-triggered sell-off settles. The leading altcoin, Ethereum, hovers above $1,900, but resistance at $2,000 caps the upside. Meanwhile, Ripple has recorded the largest intraday jump among the three assets, up over 10% to $1.35.

Three scenarios for Japanese Yen ahead of snap election

The latest polls point to a dominant win for the ruling bloc at the upcoming Japanese snap election. The larger Sanae Takaichi’s mandate, the more investors fear faster implementation of tax cuts and spending plans.

XRP rally extends as modest ETF inflows support recovery

Ripple is accelerating its recovery, trading above $1.36 at the time of writing on Friday, as investors adjust their positions following a turbulent week in the broader crypto market. The remittance token is up over 21% from its intraday low of $1.12.