Commodities
Brent may rise toward $100/bbl as Saudi output cut could worsen supply gap
A global shortfall in crude oil supply is set to deepen in the third quarter as the world’s top exporter Saudi Arabia pledged extra output cuts from July in a move likely to push Brent towards $100 a barrel by the end of the year, analysts said.
Oil prices jumped more than $1 a barrel on Monday as the Saudi energy ministry said on Sunday its output would drop to 9 million barrels per day (bpd) in July from around 10 million bpd in May, the kingdom’s biggest reduction in years.
The voluntary cut pledged by Saudi Arabia is on top of a broader deal by the Organization of the Petroleum Exporting Countries and their allies including Russia to extend production cuts into 2024 as the group seeks to boost flagging oil prices.
“Saudi Arabia has a track record of delivering on material cuts,” RBC Capital’s Helima Croft said in a note.
“Hence, we would expect the full 1 million bpd unilateral cut to hit the market in July, nearly doubling the true physical reduction we have seen from the producer group since October.”
The move has paved the way to tighter supplies and put a $70 a barrel floor under prices, analysts said, however the Saudi cut is not likely to drive prices sharply higher immediately as it will take time for inventories to be drawn down.
“With Saudi Arabia protecting oil prices from sliding too low by cutting production, we think oil markets are now more prone to a shortfall later this year,” Commonwealth Bank of Australia (OTC:CMWAY) analyst Vivek Dhar said in a note.
“We think Brent futures will rise to $85/bbl by Q4 2023 even with a tepid demand recovery in China factored in.”
Goldman Sachs (NYSE:GS) analysts Daan Struyven and Callum Bruce said the “moderately bullish” OPEC+ meeting partly offsets some bearish risks to the bank’s December 2023 price forecast of $95 a barrel, including stronger-than-expected supply from Russia, Iran, and Venezuela, and weaker-than-expected Chinese demand.
ANZ said the potential for a strong rally in crude prices had risen sharply as supply is expected to tighten significantly in the second half of the year if the U.S. Federal Reserve pauses interest rate hikes and macroeconomic headwinds ease.
“Investors are likely to add bullish bets, comfortable that Saudi Arabia and OPEC will provide a backstop should the market hit any hurdles,” ANZ analysts Daniel Hynes and Soni Kumari said in a note, maintaining their year-end target of $100 a barrel for Brent.
However price gains may be limited in the short term until there are signs of tightening in the physical market, they added.
By contrast, the United Arab Emirates was allowed to raise output targets by around 200,000 bpd to 3.22 million bpd while Russia, African and other smaller producers cut their quotas to bring them into line with their actual production levels.
“ADNOC’s investment in expanding spare capacity and its Murban (price) benchmark has fueled concerns that it might eventually look to exit the producer group and fully monetize these investments,” RBC’s Croft said.
“Affording it the 200,000 bpd quota adjustment for 2024 seems to settle the issue of its OPEC membership for now.”
Commodities
Labor dispute stops Canadian canola oil, forestry exports from West Coast
By Ed White
(Reuters) – Canada’s exports of canola oil and forest products from West Coast ports have halted due to a labor dispute, producers said on Thursday.
The stoppage, which started on Monday (NASDAQ:), involves limited strike action by the longshore foremen and a full lockout of Local 514 of the International Longshore and Warehouse Union by the B.C. Maritime Employers Association.
While bulk grain shipments are exempt from the British Columbia action, canola oil and forestry products are not covered by that federal labor code provision and are not being loaded onto ships at Pacific ports.
Based on the market price of canola oil, each day without shipments represents C$4 million in lost revenue, said Chris Vervaet, the executive director of the Canadian Oilseed Processors Association, which says it represents about 95% of Canada’s canola and soybean crush capacity.
“We really implore the government to get involved and really help both sides to a resolution.”
Federal Labor Minister Steven MacKinnon has said both sides have a responsibility to reach an agreement. On Thursday he criticized the lack of apparent progress between the union and employers as well as a smaller shutdown affecting some container traffic at the Port of Montreal.
“Both sets of talks are progressing at an insufficient pace, indicating a concerning absence of urgency from the parties involved,” said MacKinnon in a post on social media platform X.
Vervaet said Canada exports about one million metric tons of canola oil through the Port of Vancouver yearly.
Canada is the world’s top exporter of the oilseed, and canola oil is the most valuable part of the crop.
The Forest Products Association of Canada also called for federal government intervention.
Wood, pulp, paper and byproduct shipments by the organization’s members make up about 17% of Vancouver’s container exports and 14% of Montreal’s.
Commodities
Oil slips as investors digest US election fallout
By Alex Lawler
LONDON (Reuters) – Oil slipped on Thursday, extending a sell-off triggered by the U.S. presidential election, as a strong dollar and lower crude imports in China outweighed supply risks from a Trump presidency and output cuts caused by Hurricane Rafael.
Donald Trump’s election win initially triggered a sell-off that pushed oil down more than $2 as the dollar rallied. But crude prices later pared losses to settle at a less than 1% decline by the end of Wednesday’s session.
futures fell 63 cents, or 0.8%, to $74.29 a barrel by 1253 GMT on Thursday. U.S. West Texas Intermediate (WTI) crude lost 73 cents, or 1%, to $70.96.
Downside factors include a strong dollar and sluggish demand, while upside pressures come from potentially increased sanctions on Iran and Venezuela under Trump, as well as conflict in the Middle East, said Saxo Bank analyst Ole Hansen.
“Some of these potential drivers will have no impact in the foreseeable future, but they all add up to the current narrative leading to rangebound trading,” he said.
“Absent any major geopolitical escalation, the short-term outlook leans toward downside risk in my opinion.”
The dollar held near four-month highs on Thursday as investors prepared for several central bank decisions, including from the U.S. Federal Reserve. A strong dollar makes oil more expensive for other currency holders and tends to weigh on prices.
“Historically, Trump’s policies have been pro-business, which likely supports overall economic growth and increases demand for fuel,” said Priyanka Sachdeva, senior market analyst at Phillip Nova. “However, any interference in the Fed’s easing policies could lead to further challenges for the oil market.”
Further downward pressure came from data showing that crude oil imports in China fell 9% in October – the sixth consecutive month showing a year-on-year decline – as well as from a rise in inventories.
Trump is expected to reimpose his “maximum pressure policy” of sanctions on Iranian oil exports. That could cut supply by as much as 1 million barrels per day (bpd), according to Energy Aspects estimates.
In his first term, Trump also put in place harsher sanctions on Venezuelan oil. Those measures were briefly rolled back by the Biden administration but later reinstated.
Actual, rather than feared, supply cuts also lent support. In the U.S. Gulf of Mexico, about 17% of crude output or 304,418 bpd has been shut because of Hurricane Rafael, the U.S. Bureau of Safety and Environmental Enforcement said.
Commodities
Commodity prices fall after Donald Trump elected US President
By Naveen Thukral, Emily Chow and Nina Chestney
SINGAPORE/LONDON (Reuters) -Commodities from oil and gas to metals and grains dropped on Wednesday as the dollar rallied and victory for Republican Donald Trump in the U.S. presidential election stoked concerns about tariffs and economic growth.
Trump recaptured the White House by securing more than the 270 Electoral College votes needed to win the presidency, following a campaign of dark rhetoric that deepened the polarization in the country.
Oil prices fell by more than 1% on pressure from the U.S. dollar rally, which was set for its biggest one-day rise since March 2023 against major peers. [USD/]
Investors believe Trump’s presidency will bolster the dollar as interest rates may need to remain high to combat inflation that would stem from new tariffs.
A stronger U.S. dollar makes greenback-denominated commodities such as oil more expensive for holders of other currencies.
Precious metals also fell, with gold sliding to a near three-week low, while lost more than 2%, making it the worst performer of the base metals complex.
“Gold will be torn between the risk of rising inflation, potentially slowing the pace of U.S. rate cuts, as tariffs are rolled out and continued demand for safe haven assets,” Ole Hansen, head of commodity strategy at Saxo Bank, said.
Commodity prices started to fall overnight as traders started to price in the likelihood of a Trump win.
“This scenario is expected to bring about the promised tariffs on imported goods, particularly targeting China, potentially triggering a new wave of trade tensions and economic disruptions,” Hansen added.
However, Trump could renew sanctions on Iran and Venezuela, removing oil barrels from the market, which would be bullish, said UBS analyst Giovanni Staunovo. Iran exports about 1.3 million barrels per day.
Benchmark European gas prices also fell by nearly 3% amid concerns about gas supplies and Trump’s stance on the Middle East conflict and Russia-Ukraine war.
China’s industrial metals and steel industries could face headwinds as Trump has pledged to impose blanket 60% tariffs on Chinese goods to boost U.S. manufacturing.
“China’s steel prices will undertake more downward pressure if Trump wins the election, and domestic steelmakers may face even more severe losses,” said Ge Xin, deputy director at Lange Steel Research Centre.
“This is because Trump will be more aggressive in terms of measures against China.”
The copper market was pricing in the possible roll-back of U.S. electrification initiatives, including subsidies for electric vehicles, which would dampen demand.
Agricultural commodities were also hit, with soybean futures in particular trading lower. Wheat and corn were seen as less exposed to renewed trade tensions with China.
A stronger dollar makes U.S. grain more expensive overseas, while tariffs proposed by Trump could disrupt U.S. agricultural trade, with soybeans particularly reliant on sales to leading importer China.
There are also fears that China could respond with retaliatory measures, potentially reducing U.S. exports of key crops and creating downward pressure on prices.
Shares in European clean energy companies also fell as Trump has vowed to scrap offshore wind projects through an executive order on his first day in office.
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