EUROPEAN COMMODITIES UPDATE: Crude drifts higher whilst metals are weighed on by the firmer Dollar, but copper bucks the trends

Analysis details (10:36)

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  WTI and Brent front-month futures are on a firmer footing intraday despite the firmer Dollar but as equities see cautious gains. The former’s August contract and the latter’s September contract both settled higher by around USD 0.30/bbl yesterday in what was a choppy session, but the benchmarks were ultimately underpinned by the firm US data. Speaking of US data, the focus today will fall on the US PCE metrics for which Fed Chair Powell guided his expectations for the Core PCE metric in line with market expectations. “Growing expectations of further hikes is one of the factors which is capping the upside in the market, while on the downside, the belief that OPEC+ will take further action if there is significant further weakness provides a floor to the market. As a result, the oil market continues to trade in a fairly rangebound manner.”, suggest the analysts at ING. Meanwhile, HSBC has revised its assumptions for Brent oil prices, lowering them to USD 80/bbl for H2 2023 and the FY. They've further reduced the estimate to USD 75/bbl for the full year of 2024 and for the long term. HSBC predicts that the supply cuts by OPEC+ and Saudi Arabia will lead to a significant deficit in the second half of 2023. The bank also warns of the lasting impact of higher interest rates maintained over an extended period. HSBC believes that this will likely result in a decrease in oil demand beyond the year 2024. Overnight, the Chinese PMI data was largely in-line with market forecasts and resulted in little-to-no reaction across the crude complex. This morning, the mostly softer-than-expected EZ data spurred no move. WTI August resides around 70.50/bbl (vs low 69.59/bbl) while Brent September trades around 75.25/bbl (vs low 74.28/bbl).


• Over to metals, spot gold remains heavy as the Dollar extends gains above 103.00 to around 103.50, with the yellow metal threatening another breach of USD 1,900/oz to the downside this morning, but just about held onto the handle. Ahead, US PCE will be the main focal point for gold bugs. Base metals are mostly but copper bucks the trend and outperforms, with the LME 3M contract back above USD 8,250/t at the time of writing, firmer by almost 1% intraday. Reports last night noted an electrical accident at Codelco’s largest copper mine – the El Teniente mine, with the firm suggesting work in the area was immediately halted following one fatality. Elsewhere Boliden announced its Ronnskar facility production partially resumed, although several production lines may have to operate at limited capacity and all other production lines at Ronnskar are expected to be ready for production during July. This follows a fire reported at the copper smelter with a force majeure announced around mid-June. The smelter can produce 250k tonnes of copper per year, making it one of the world’s largest smelters. Nonetheless, copper prices are poised for the largest quarterly drop since September 2022 as China's woes remain a grey cloud on demand. That being said, iron ore is set for the best month so far this year amid hopes China will roll out stimulus to support the post-COVID rebound.

30 Jun 2023 - 10:40- Research Sheet- Source: Newsquawk