Commodities corner: Oil the driving force

Oil continues to be at the forefront of commodity market activity as the northern hemisphere heads into summer and the peak time for petrol.

With the US ‘driving season’ (AKA the summer holidays) starting in earnest this week (after the Memorial Day holiday long weekend) rising petrol prices took centre stage last week as inventories dipped again.

In New York Nymex gasoline (petrol) futures rose more than 4% to settle at $US4.108 a gallon.

US oil rig numbers fell by two to 574 last week, the first fall in 10 weeks, according to data from services company, Baker Hughes. But gas rigs numbers rose one to 151 to their highest since September 2019.

That was after Brent crude rose $US2.03, or 1.7%, to settle at $US119.43 while US West Texas Intermediate (WTI) crude rose 98 cents, or 0.9%, to settle at $US115.07 a barrel.

For the week, Brent jumped 6% while WTI added more than 5%.

“The U.S. driving season and strong travel demand should help (prices). With supply growth lagging demand growth, the oil market is likely to stay undersupplied. Hence, we remain positive in our outlook for crude prices,” UBS analyst Giovanni Staunovo told Reuters.

European Union countries are negotiating a deal on Russian oil sanctions that would embargo shipment deliveries but delay sanctions on oil delivered by pipeline to win over Hungary and other landlocked member states.

Meanwhile, while Woodside Energy was expressing confidence that the price of liquified natural gas (LNG) would remain high for the rest of 2022, reports emerged on Friday of a slide in China’s imports of LNG in May.

Reuters said that a combination of high prices and weak manufacturing due to COVID-19 lockdowns had crimped demand for gas while China’s coal-fired power stations maintain high levels of stocks, unlike last year when electricity rationing was starting out in some parts of the country.

 Reuters reported that gas use has fallen further in May as a COVID resurgence caused extended lockdowns across several manufacturing hubs, signalling a slide in future demand that has already shown itself in weak orders for July.

Even for shipments arriving in July, industrial consumers are not placing orders, a Chinese trader told Reuters.

LNG imports will likely fall as much as 19% this year – by 1 to 15 million tonnes – in what would be the first sizeable drop since China began importing the gas in 2006, according to forecasts by S&P Global Commodity Insights, Wood Mackenzie and SIA Energy.

That in turn will take some pressure of Europe and allow the unneeded gas to be diverted there to meet shortfalls in Russian supplies.

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Meanwhile the weaker US dollar helped metal prices to gains over the week and especially on Friday.

That saw gold prices rise on Friday and the for week.

Comex’s August contract rose $US3.40 to $US1,857.30 an ounce on Friday in New York, for a gain of 0.30% over the week.

The gain came despite risk off confidence with US bond yield dipping and the dollar easing.

Yields on 10-year US bonds ended at 2.745%, down nearly 11 basis points over the week.

The Aussie dollar ended at 71.60 US cents on Saturday morning which was up 1.70% for the week and no sign of any market fears about the new Labor government.

Comex silver rose 1.92% higher at $US22.06 an ounce and Comex copper edged up 0.7% to $US4.32 a pound.

London Metal Exchange nickel rose 4% on Friday to end at $US28,284 a tonne for three-month metal, from $27,198 a tonne on Thursday.

Iron ore prices eased a touch last week. The Singapore futures price for 62% Fe fines delivered to northern China ended Friday at $US132.8, down from the previous Friday’s $US134.07.

Australian coking coal futures ended at $US433 a tonne in Singapore on Friday.

And ICE Newcastle thermal coal futures steadied and rose Friday to end at $US370 a tonne for the June contract. That was down 12% over the week.

US grain prices declined overall in Chicago on Friday, with traders keeping a close eye on protectionist measures by exporting countries, which tend to multiply given supply concerns and inflationary pressures.

Wheat ended around $US11.50 cents a bushel, corn was at $US7.65 cents a bushel.

Despite the growing optimism from Wednesday onwards as investors accepted the Fed is back in control of monetary policy, investors remain ever mindful about the chances of a global economic slowdown later this year.