Commodity Prices Shrink – Highlights to Dive In This Week

Commodity Prices Shrink – Highlights to Dive In This Week

With demand worries taking center stage, both the flat price and oil-time spreads continue to shrink. The level that the G-7 intends to set for the price cap on Russian oil will be made clear this week. Rising COVID cases in China exacerbated fears of curtailing demand in the world’s biggest oil importer. Prospects of rising interest rates dampened the demand outlook, extending last week’s steep losses to Monday. Oil prices have fallen to their lowest in two months.

Fed officials increased the chances of aggressive rate tightening as the Fed strives to meet its yearly target range with bullish statements. Hence, the oil prices were reduced. On Wednesday, the US Federal Reserve will publish FOMC minutes from its meeting in October, which will provide further clarity on where interest rates are headed.

Last week, the oil market came under pressure. NYMEX WTI consolidated just above US$80/bbl, while ICE Brent fell by more than 8.7%. Demand worries prices, and the sentiment in the market continues to be gloomy. The Covid situation in China and a challenging global macro backdrop are driving these worries. The forward curve is likewise weakening. WTI time spread is now in contango, indicating that the spot market is more supplied. Meanwhile, the Brent ICE prompt spread has narrowed from more than $1.30 per barrel on Monday to just $0.47 on Friday.

China’s COVID Situation Impacting the Prices

After China announced a significant rise in Covid cases, bulk metal miners and energy producers suffered a drop in the price of iron ore and crude oil. There were 27,095 new cases reported, up from 24,435 new cases yesterday. Authorities sealed off the Guangzhou industrial hub’s Baiyun district for five days, dealing a blow to commodity prices. Traveling between districts is frowned upon, according to Beijing officials. Due to reports, a large number of malls, office buildings, and restaurants have been closed. Authorities in Hebei province’s capital instructed residents to stay at home.

Main Events of The Week to Come

Tight crude inventories in Europe have reportedly stabilized. Refiners steadily accumulated supplies in anticipation of an official European Union on Russian crude exports on December 5. This puts pressure on crude markets if stocks drain at speeds faster than projected.

Thanksgiving in the US this Thursday makes this week’s calendar shorter than usual. Yet, the G-7 price cap for Russian oil could help us get more clarity on Wednesday. On Thursday, EU energy ministers will ultimately meet to discuss closer cooperation on the region’s latest energy policy proposals, including joint purchases and price volatility management.