Investing.com — prices are expected to lag behind other precious metals, according to analysts at UBS. 

The analysts flagged the volatility of palladium, which has seen prices fluctuate above $1,000 per ounce in recent weeks. 

They added that with elevated short positions in the market, this volatility is likely to continue in the near term.

UBS pointed to several factors contributing to a tighter palladium market, which contrasts with their long-term outlook. 

A decline in electric vehicle sales this year has helped sustain demand for palladium in autocatalysts, a sector that accounts for over 90% of palladium consumption. 

Additionally, upcoming supply cuts from a U.S. palladium mine next year are expected to tighten the market further, prompting UBS to raise their price forecasts by $100 per ounce.

Despite the short-term tightening, the long-term outlook for palladium remains bleak. 

The shift from internal combustion engines to battery electric vehicles is expected to oversupply the metal, as the demand from the autocatalyst sector declines. 

The analysts pointed out that while global car electrification rates have stalled, consumers are increasingly favoring hybrid vehicles, which still rely on autocatalysts and, consequently, palladium.

Supply dynamics also contribute to the anticipated tighter market. UBS noted that the fourth-largest palladium producer, holding a 14% market share, plans to restructure its U.S. operations due to unfavorable pricing. 

This restructuring will lead to a reduction in group metal production, particularly palladium, with an expected cut of around 150,000 ounces, which represents about 2.3% of the 2023 mine supply.

While UBS has adopted a more neutral outlook for palladium amid these short-term factors, they caution that the metal is likely to underperform compared to other precious metals. 

This perspective is reinforced by an anticipated increase in scrap supply from old car autocatalysts next year, as well as a continuing trend of substitution in new vehicle autocatalysts, which favors platinum over palladium.

By Alex Lawler

LONDON (Reuters) -Oil steadied on Wednesday, supported by OPEC+ cuts and uncertainty over what may happen next in the Middle East conflict, although an outlook for ample supply next year added downward pressure.

Crude fell more than 4% to a near two-week low on Tuesday in response to a weaker demand outlook and after a media report said Israel would not strike Iranian nuclear and oil sites, easing fears of supply disruptions.

futures were down 33 cents, or 0.4%, at $73.92 a barrel by 1110 GMT. U.S. West Texas Intermediate crude futures lost 38 cents, or 0.5%, to $70.20.

Still, concern about an escalation in the conflict between Israel and Iran-backed militant group Hezbollah persists. OPEC+ supply curbs remain in place until December when some members are scheduled to start unwinding one layer of cuts.

“We would be somewhat surprised if the geopolitical risk premium has disappeared for the time being,” said Norbert Ruecker of Julius Baer.

“We see the market heading towards a supply surplus by 2025,” he added.

On the demand side, the Organization of the Petroleum Exporting Countries and the International Energy Agency this week cut their 2024 global oil demand growth forecasts, with China accounting for the bulk of the downgrades.

Economic stimulus in China has failed to give oil prices much support. China may raise an additional 6 trillion yuan ($850 billion) from special treasury bonds over three years to stimulate a sagging economy, local media reported.

“Monetary and fiscal efforts to revive the Chinese economy are proving a damp squib,” said Tamas Varga at oil broker PVM.

Coming up is the latest U.S. oil inventory data. The American Petroleum Institute’s report is due later on Wednesday, followed by the government’s figures on Thursday. Both reports are published a day later than normal following a federal holiday.

Analysts polled by Reuters expected crude stockpiles rose by about 1.8 million barrels in the week to Oct. 11.

Investing.com– Oil prices rose slightly Wednesday, steadying after logging bruising losses over the past week as the prospect of a less severe escalation in the Middle East and weak demand weighed.

At 09:00 ET (13:00 GMT),  rose 0.3% to $74.48 a barrel, while rose 0.4% to $70.87 a barrel. 

Middle East fears ease after Israel report 

Prices plummeted more than 4% in the prior session after fears of a severe escalation in the Middle East conflict eased following a Washington Post report said Israeli Prime Minister Benjamin Netanyahu assured U.S. officials that the country would not attack Iran’s oil and nuclear sites. 

Markets have been watching for Israel’s retaliation over an early-October missile strike by Iran, as hostilities between Israel and Iran-backed forces showed little signs of easing.

Fears of all-out war in the region had been a major boost to oil prices, as traders priced in a greater risk premium on the prospect of Middle East supply disruptions. 

IEA, OPEC warnings dent oil outlook

Oil markets were also grappling with warnings on increased supply and lower demand from two major industry groups this week.

The International Energy Agency said in a on Tuesday that it expects oil markets to see a supply glut in 2025, and that it stood ready to plug any potential supply disruptions from the Middle East. 

The agency also slightly trimmed its 2024 demand growth forecast, citing weakness in top importer China.

The cut came just a day after the cut its demand growth forecast for 2024 and 2025, citing concerns over worsening demand in China.

China have announced a slew of stimulus measures in recent weeks. But investors were still underwhelmed by a lack of details on the timing and scale of the planned measures. 

Weak economic readings from the country also dented sentiment.

OPEC faces a dilemma – Bernstein

Global oil demand remains in the doldrums, according to Bernstein, creating a dilemma for OPEC given the looming surplus in crude supply next year.

“Heading into 2025, we remain concerned about the looming surplus in crude supply next year which would reduce the call on OPEC by 0.9 million bbls/day,” said analysts at Bernstein, in a note dated Oct. 16.

“OPEC’s dilemma is that to support current prices, they probably need to cut. But with spare capacity already at elevated levels, this is far from what OPEC would like to do,” said analysts at Bernstein, in a note dated Oct. 16.

More recently, the OPEC members have been talking about unwinding cuts, although this could be an attempt to maintain discipline among OPEC members, Bernstein said. 

At this stage any increase in OPEC output towards the end of the year looks unlikely, but this is probably the biggest thing to worry about in the near term for oil investors. 

“While the setup on fundamentals does not look positive for Brent, geopolitics remains the key upside risk which cannot be completely discounted given the geopolitical risks,” Bernstein added.

(Ambar Warrick contributed to this article.)