Commodities
Pronounced oil oversupply likely if OPEC raises output, Macquarie says
Investing.com — OPEC is set to meet this week, and the group’s next decision could have notable implications for global markets, according to Macquarie strategists.
The organization’s meeting this week comes at a time of heightened uncertainty, and should it decide to increase supply, strategists believe “the scales would tilt heavily towards pronounced oversupply in oil.”
While OPEC has postponed production increases originally planned for October and December, the potential for a January supply hike remains. Macquarie noted it “would be surprised to see OPEC announce the return of supply for Jan. ’25; surprised, but not shocked.”
A decision to restore supply could signal a pivot toward the “oft-feared ‘market share’ strategy” that has characterized some of OPEC’s past price wars.
Saudi Arabia, a key OPEC player, faces a delicate balance. Its fiscal breakeven oil price, estimated by the IMF at $98 per barrel for 2024, contrasts with current levels and suggests financial pressures. However, Saudi Arabia’s discussions of a “deficit by design” strategy imply greater tolerance for lower prices.
Macquarie points to Saudi foreign reserves and a low debt-to-GDP ratio as indicators of resilience. Yet, the risk remains that supply increases could drive prices “well below the current range.”
“From a high level, we think a shift to a strategy of slow production increases from Saudi Arabia constitutes a reasonable starting point. As such, the key question may simply be the aggressiveness with which Saudi Arabia intends to return supply,” strategists commented.
Adding to the complexity is the global demand outlook. Post-pandemic recovery in oil consumption has slowed, with the IEA forecasting modest growth of 0.9 million barrels per day in 2024.
Structural shifts, such as the rising adoption of EVs and biofuels, are likely to weigh on the demand for traditional fuels. In China, a historical engine of oil demand growth, consumption of diesel and gasoline is projected to have peaked, presenting additional headwinds.
The note also highlights the role of US production, which has grown over 60% since 2014 and now accounts for a significant portion of global supply. This growth, coupled with de-bottlenecking efforts in Canada and Argentina, signals a robust capacity for short-cycle supply increases that could further pressure prices.
Overall, Macquarie strategists point out the potential for volatility, noting that sudden shifts in OPEC policy “are seldom anticipated by the market and we see the recent bias towards market support facing fundamental supply and demand pressures.”
“All that is to say, while a hard policy shift appears unlikely at this point, we believe it cannot be altogether dismissed,” they added.
Investing.com — Copper prices are down more than 1% after the Federal Reserve hinted at fewer rate cuts for the upcoming year.
The shift to a more hawkish stance by the Fed has resulted in an increase in bond yields, a surge in the strength of the dollar to 25-month highs, and a spike in volatility. This shift has also led to a sharp decline in key commodity currencies.
Market participants have expressed concern that there isn’t much on the annual calendar to halt this downward trend. The three-month London Metal Exchange (LME) contract has registered a 1.5% decrease, trading at $8,912 a ton.
In addition to the Federal Reserve’s stance, looming U.S. tariffs on Chinese goods and uncertainties surrounding China’s domestic demand outlook continue to pressure the market.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.
Investing.com– Gold prices rebounded from a one-month low on Thursday as the Federal Reserve lowered interest rates as expected, although the central bank’s hawkish stance on future rate cuts clouded the outlook for bullion.
Gold prices had dropped more than 2% overnight after the Fed’s policy meeting indicated fewer rate cuts in 2025, as sticky inflation remained a major concern.
jumped as much as 1.3% to $2,618.11, while expiring in February dropped 1.2% to $2,620.79 an ounce by 22:51 ET (03:51 GMT).
Spot gold rebounds, but outlook dim amid slower rate cuts
The Fed reduced by 25 basis points but signaled it will adopt a slower pace for future cuts.
Lower interest rates bode well for gold prices as the opportunity cost of holding gold decreases, making it more attractive compared to interest-bearing assets like bonds.
However, gold futures fell sharply as the rates are expected to remain higher for a longer period after Wednesday’s cut. Markets have ruled out chances of a cut in January and now expect just two more cuts in 2025, against their earlier expectations of four.
Fed Chair Jerome Powell said further reductions depend on progress in curbing persistent inflation, reflecting policymakers’ adjustments to potential economic shifts under the incoming Donald Trump administration.
The Federal Reserve’s hawkish stance was aimed at curbing inflation, but it also signals confidence in the resilience of the U.S. economy. This risk-on sentiment can reduce the demand for safe-haven assets, further dampening bullion’s prospects.
With fewer cuts expected in 2025, the is expected to strengthen further. The greenback surged to an over two-year high on Wednesday.
Additionally, the maintained its interest rates on Thursday, as policymakers remained cautious over Japan’s economic outlook and the path of inflation.
Among other precious metals, rose 0.7% to $928.90 an ounce, while slumped 2.7% to $29.922 an ounce.
Copper falls on as dollar hits 2-yr high
Among industrial metals, copper prices extended declines on Thursday after the Fed’s hawkish stance bolstered the dollar. The red metal took limited support from reports of more fiscal spending in top importer China over the coming year.
The rose 0.1% in Asian trade on Thursday and was at an over two-year high after the Fed meeting.
Benchmark on the London Metal Exchange fell 1.4% to $8,921.50 a ton, while one-month were largely unchanged at $4.089 a pound.
By Colleen Howe, Trixie Yap and Anna Hirtenstein
(Reuters) -Oil prices fell on Thursday after the U.S. Federal Reserve signalled it would slow the pace of interest rate cuts in 2025, which could hurt economic growth, reduce fuel demand and strengthen the dollar.
futures declined by 29 cents to $73.10 a barrel by 1249 GMT. U.S. West Texas Intermediate crude lost 16 cents to $70.42.
The declines gave back Wednesday’s gains on a drop in stocks and the Fed’s expected rate cut of 25 basis points.
Prices weakened after U.S. central bankers issued projections pointing to two quarter-point cuts in 2025 on concern over rising inflation. That was half a point less than they had flagged in September.
“The bottom line for oil is the longer the Fed stays on pause, the stronger the U.S. dollar. This tends to generate headwinds for commodities like oil,” said Harry Tchilinguirian at Onyx Capital Group.
A stronger dollar makes dollar-priced commodities more expensive while higher interest rates weigh on economic growth, potentially reducing demand for oil.
Chinese refining giant Sinopec (OTC:), meanwhile, expects China’s oil consumption to peak by 2027, it said on Thursday.
“The demand-supply balance going into 2025 continues to look unfavourable and predictions of more than 1.0 million bpd demand growth in 2025 look stretched in our opinion. Even if OPEC+ continues to withhold production, the market may still be in surplus,” said Suvro Sarkar, DBS Bank energy sector team leader.
Though demand in the first half of December rose year on year, volumes remained lower than expected by some analysts.
JP Morgan analysts said that global oil demand growth for December so far was 700,000 barrels per day (bpd) less than it had expected, adding that global demand this year has risen by 200,000 bpd less than it had forecast in November 2023.
Official data from the Energy Information Administration on Wednesday showed U.S. crude stocks fell by 934,000 barrels in the week to Dec. 13. Analysts polled by Reuters had expected a drawdown of 1.6 million barrels. [EIA/S]
While the decline was less than expected, the market found support from last week’s rise in U.S. crude exports by 1.8 million bpd to 4.89 million bpd.
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