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Authors Warren Patterson, Wenyu Yao Newsletter
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The oil market started the week on a solid footing. The Brent ICE continues to rise in early morning trading in Asia and it seems it is only a matter of time before the market tests the US $ 80 / bbl level. Wider concerns about tightening energy markets, particularly for natural gas, spill over into the oil market. The Asian LNG market is trading at an equivalent of over US $ 150 / bbl, while European gas prices are not too far from an equivalent of US $ 140 / bbl. These higher gas prices will lead to some substitution of gas for oil, which would support the demand for oil. This stronger demand coupled with supply losses of over 30 million barrels from the Gulf of Mexico to the United States (due to Hurricane Ida) suggest a tighter-than-expected market.
It will be interesting to see what OPEC + has to say about the strength of energy markets at its October 4 meeting. In the current context, it seems almost certain that the group will continue to ease supply cuts, which should allow it to confirm an increase in supply of at least 400 Mb / d for November. We would not rule out OPEC + deciding to ease more than this amount, especially if the current market strength persists. The group is likely to face increasing pressure from some key consumers if prices continue to rise.
The latest data on the number of platforms from Baker Hughes shows that the US industry has increased the number of active platforms by 10 over the past week, bringing the total number to 421. This is the level highest since April of last year. Although the number of drilling rigs has increased by 58% so far this year, it remains well below the 683 active oil rigs seen in March of last year. However, the current price environment is expected to see the number continue to rise, supporting supply growth for next year and through 2023. The EIA estimates supply growth in the United States at a just over 640 Mbbls / d in 2022.
The positive sentiment we are seeing in the market right now is reflected in the positioning data. The latest Commitment of Traders report shows speculators increased their net long position in ICE Brent by 21,004 lots in the last week of reporting, leaving them a net long position of 319,651 lots last Tuesday. This is the most important position they have held in the market since March. Given that the price of oil has strengthened further since last Tuesday, the speculative position is likely even larger today.
The food crisis and supply problems dominate the metal complex. China’s electricity shortage continues to worsen and disproportionately hits producers throughout the supply chain. As things continue to unfold, the issue of energy acts like a double-edged sword, hitting production at the foundry and leading to a reduction in supply. This is positive for metal prices. However, it also affects semi-manufacturing and downstream consumers, which is negative for prices. In Anhui, the latest electricity rationing program hit semi-manufacturers harder than cathode production, according to MyMetal.
The aluminum rally took a hiatus last Friday, possibly due to a steadily rising inventory in the Chinese onshore market. As for stocks, they are generally expected to accumulate on a seasonal basis. However, onshore copper inventories continued to decline, reaching their lowest levels since 2009. The reduced flow of scrap continues to push consumers to buy cathodes instead. According to the latest customs data, China’s scrap metal imports fell 13% MoM in August.
As for zinc, LME prices surged after high energy prices in Europe hit zinc production at one of Nyrstar’s zinc smelters based in the Netherlands. There are also growing expectations for a tighter concentrate market, as mines based in northern China will slow down over the winter as smelters begin to build up raw material inventories. One of the themes that supported the zinc market was the tightening of the concentrate market. However, there is also growing concern that downstream zinc consumers will be hit hard by the current electricity crisis, which could weigh on demand.
In China, soybean processing plants in several regions, including Tianjin City, have been ordered to shut down / scale back operations for about a week or more due to power rationing amid shortages in Classes. Tianjin City has a soybean processing capacity of about 750,000 tons per month. About 80% of China’s soybean demand comes from processing plants where the soybeans are processed into oil and meal. The halt in operations is likely to weigh on demand for soybeans in the short term. Rising energy prices combined with Beijing’s efforts to reduce pollution and enforce environmental regulations have created power shortages across the country. These shortages have affected various industries including aluminum, steel and now food processing. On the positive side, the decline in soybean processing is likely to tighten the domestic market for oils and meals and support crushing margins, which would help increase exploitation rates once the power supply returns to normal. the normal.
Soybeans Electricity shortages OPEC + Natural gas Metals Share
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