Commodities
HSBC sees rising downside risks for commodities
Investing.com — Analysts at HSBC flagged growing downside risks for commodities, despite prices holding up at elevated levels for much of the previous 18 months.
While supply-side constraints have primarily driven commodity prices, slowing global demand and geopolitical uncertainties are creating new challenges.
“Although global commodity prices are well below the record-high peaks reached in mid-2022, they remain elevated,” said analysts at HSBC.
As of August 2024, prices were still 44% above their pre-pandemic average in nominal terms. However, when adjusted for inflation, these prices are closer to the 20-year historical average.
The primary reason for this resilience has been the supply-side “super-squeeze,” which HSBC identified as a key driver since 2022.
Global economic growth is slowing, and this is expected to weigh on commodity demand. HSBC forecasts global growth at 2.6% in both 2024 and 2025, down from 2.7% in 2023.
Sluggish global manufacturing, exacerbated by the ongoing property sector crisis in China, is a major headwind for metals prices.
China’s housing sector, a big consumer of metals like iron ore and copper, remains a key downside risk, with construction metrics still in contraction despite government stimulus efforts.
China’s property contraction is particularly concerning for industrial metals.
Although metals linked to the energy transition, such as and , have performed better, those more dependent on traditional infrastructure, such as iron ore, face significant demand challenges.
HSBC’s proprietary Commodity Cycle Selector (COCCLES), which employs machine learning to analyze commodity price movements, signals that commodities entered a Bear phase in mid-July 2024.
This model suggests that further downward pressure could be expected across a range of commodities, including oil and copper, although some commodities like have seen recent price increases due to geopolitical concerns.
While demand-side factors are weighing on commodities, supply-side constraints continue to provide support. Geopolitical risks, including the Russia-Ukraine conflict, disruptions in the Red Sea, and high shipping costs, remain elevated.
These supply-side disruptions, combined with the effects of climate change, such as extreme weather impacting agricultural production, create persistent volatility in global commodity markets.
In the energy sector, HSBC’s oil and gas team forecasts that OPEC+ production cuts, along with record-high US crude production, could lead to a market surplus by 2025. However, for now, geopolitical tensions are keeping oil prices relatively elevated.
The ongoing global energy transition is boosting demand for metals like copper, lithium, and hydrogen, which are essential for renewable energy technologies, electric vehicles, and battery storage systems.
However, HSBC warns that supply chain issues and geopolitical challenges could hamper the smooth flow of these critical materials.
In agricultural markets, weather remains the primary driver. Grains like wheat and maize have seen prices fall due to favorable weather conditions, particularly in the United States.
In contrast, “finer foods” such as cocoa, coffee, and olive oil have experienced significant price increases due to adverse weather conditions and supply disruptions in key producing regions.
HSBC notes that global food prices could remain volatile, with risks stemming from climate change, geopolitical tensions affecting trade routes, and shifts in trade policy, particularly in the aftermath of India’s rice export restrictions.
Precious metals, particularly gold, have surged to record highs above $2,500 per ounce. “The rally has been fuelled by powerful safe haven and hedge fund purchases, prompted by expectations of Fed and other central bank rate cuts, and growing economic and geopolitical uncertainty,” the analysts said.
Gold’s role as a hedge against inflation and economic uncertainty is expected to remain strong, with potential further upside depending on the global macroeconomic and political environment.
MOSCOW (Reuters) – Nearly 500,000 metric tons of Russian oil products are trapped on tankers hit by U.S. sanctions, LSEG data showed on Wednesday.
On Jan. 10, new Russia-related sanctions targeted more than 180 vessels and insurance companies, adding to the impact of similar restrictions imposed by United Kingdom (TADAWUL:) and Europe Union.
The vessels under the latest U.S. sanctions include nine tankers that loaded oil products at Russian Baltic and Black Sea ports in December and January.
Four of them – Cup, Aquatica, Turaco and Onyx – are carrying in total around 280,000 tons of fuel oil, destined for India, Turkey and Singapore, LSEG data shows.
Another of the tankers – Ariadne – was loaded in December with about 35,000 tons of naphtha in the Russian Baltic port of Ust-Luga. It is drifting near Egyptian port of Port Said, according to shipping data.
Four other vessels from the sanctions list are carrying in total around 160,000 tons of ultra-low sulphur diesel and gasoil of Russian origin.
One of those cargoes – Pravasi – is discharging at the Brazilian port of Santos. Three other vessels – Symphony, Jupiter and Talisman – are on their way to Turkey, according to LSEG data.
Although there is a transition period, allowing the discharge of cargoes that has already been agreed, traders said concern about penalties has slowed activity.
Since the sanctions were announced, at least 65 oil tankers have dropped anchor at multiple locations, including off the coasts of China and Russia, ship tracking data showed.
By Arunima Kumar
(Reuters) -Oil prices paused their rally on Tuesday, but remained near four-month highs, with the market’s attention focused on the impact of new U.S. sanctions on Russian oil exports to key buyers India and China.
futures slipped 54 cents, or 0.67%, to $80.47 a barrel by 1033 GMT, while U.S. West Texas Intermediate (WTI) crude fell 53 cents, or 0.67% to $78.29 a barrel.
Prices jumped 2% on Monday after the U.S. Treasury Department on Friday imposed sanctions on Gazprom (MCX:) Neft and Surgutneftegas as well as 183 vessels that transport oil as part of Russia’s so-called “shadow fleet” of tankers.
“With several nations seeking alternative fuel supplies in order to adapt to the sanctions, there may be more advances in store, even if prices correct a bit lower should tomorrow’s U.S. CPI data come in somewhat hotter-than-expected”, said Charalampos Pissouros, senior investment analyst at brokerage XM.
The U.S. producer price index (PPI) will be released today, followed by the consumer price index (CPI) on Wednesday.
A core inflation rise above the 0.2% forecast could lower the likelihood of further Federal Reserve rate cuts, which typically support economic growth and could boost oil demand. [MKTS/GLOB]
While analysts were still expecting a significant price impact on Russian oil supplies from the fresh sanctions, their effect on the physical market could be less pronounced than what the affected volumes might suggest.
ING analysts estimated the new sanctions had the potential to erase the entire 700,000 barrel-per-day surplus they had forecast for this year, but said the real impact could be lower.
“The actual reduction in flows will likely be less, as Russia and buyers find ways around these sanctions,” they said in a note.
Nevertheless, analysts expect less of an supply overhang in the market as a result.
“We anticipate that the latest round of sanctions are more likely to move the market closer to balance this year, with less pressure on demand growth to achieve this,” said Panmure Liberum analyst Ashley Kelty.
Uncertainty about demand from major buyer China could blunt the impact of the tighter supply. China’s imports fell in 2024 for the first time in two decades outside of the COVID-19 pandemic, official data showed on Monday.
By Arathy Somasekhar
HOUSTON (Reuters) – Peru’s niche Bretaña is gaining popularity in the United States, with the first cargo discharging in the U.S. Gulf Coast this month as U.S. refiners seek alternatives for declining Mexican heavy crude.
Bretaña, a rare heavy sweet crude with minimal metals, is produced in the Peruvian side of the Amazon (NASDAQ:) rainforest. It is then barged along the Amazon river and loaded onto larger ships that depart from Brazil.
The vessel Radiant Pride transported about 300,000 barrels of Bretaña from Manaus, on the banks of the Negro river in Brazil, and discharged on Jan. 2 in Houston, ship tracking data from Kpler and LSEG showed.
The cargo was bought by oil major Shell (LON:), a source said. Shell declined to comment.
“Given the drop in heavy sour crude from Mexico to the U.S. Gulf Coast over the last year, we are starting to see new heavy grades being pulled in to backfill this loss – this is a trend we only expect to continue,” said Matt Smith, an analyst at Kpler.
U.S. imports from Mexico fell to their lowest on record in 2024 as the Latin American country’s oil production fell and a larger portion of output remained at home to be refined.
Two cargoes of Peru’s Bretaña, a relatively new entrant into the market since production began in 2018, discharged at the U.S. West Coast last year – one at Marathon Petroleum (NYSE:) and another at PBF Energy (NYSE:) terminals, the Kpler data showed.
Marathon Petroleum declined to comment. PBF Energy did not immediately reply to a request for comment.
PetroTal Corp, the producer of Block 95 where the Bretaña oilfield is located, bought the assets from Canadian producer Gran Tierra Energy (NYSE:) in 2017, and currently produces about 20,000 barrels of oil per day, according to Chief Executive Officer Manuel Zúñiga.
Challenges with transporting the crude via a pipeline operated by Peru’s state oil firm Petroperu led to a brief halt in exports between 2022 and 2024, Zúñiga said.
Petroperu has struggled in recent years to keep the line operational amid spills and social conflict interrupting its flow.
Three cargoes of Bretaña headed to the U.S. West Coast and one to the U.S. East Coast between 2020 and 2022, Kpler data showed.
About 90% of the Bretaña crude produced by PetroTal is exported, and the remaining is transported by barges to Petroperu’s refinery in Iquitos, Zúñiga said.
PetroTal has a contract with Houston-based Novum Energy under which Novum buys the crude for export and arranges its transportation, Zúñiga added.
Novum did not immediately respond to a request for comment.
While PetroTal hopes to increase production, permitting delays as well as reliance on barges are a current limitation, Zúñiga said.
“You need access to the pipeline,” Zúñiga said, adding that the company is working to secure use of the infrastructure.
Petroperu said last year that it would hold negotiations with producers in the Peruvian jungle so that they can use the pipeline with a fair rate to help cover operational costs.
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