Weekly Commodity Update Group Economics · Weekly Commodity Update Group Economics 14 August 2013...
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Weekly Commodity Update Group Economics 14 August 2013 Lower Libyan output proves supportive Last week news about the possibility of a rise in Libyan oil output triggered some relief for oil prices. This week, however, oil prices found some support based on the news that strikes pushed Libyan oil production to the lowest level since the 2011 civil war. Currently, Libyan oil production is around 400,000 barrels per day. In Graph: OPEC oil production (in %/total OPEC prod) Source: Thomson Reuters, ABN AMRO June, this was still 1.3 million barrels per day. The lower output does not immediately lead to supply constraints as there is ample supply and Saudi Arabia will be able to meet any shortfall. In total, OPEC produces around 30.5 million barrels of oil per day. Nevertheless, the lower Libyan output does increase worries about possible supply shortages and leads to an increased risk premium based on the spill-over risk. As a result, Brent oil neared USD 110/bbl. Also WTI was trading higher, partly due to Brent support, but also due to another report of lower US crude inventories. This is the fifth drop in weekly inventories in the last six weeks. Nevertheless, the upside in oil prices remains limited as the uncertainty about the timing of Fed easing the pace of its asset purchases continues to hang above the market. Copper recovery continued Copper prices at the London Metal Exchange (LME) have risen by 8.5% since the low set at the end of July. Hopes of a stronger than expected demand from China was the main reason for the rally, which pushed all base metals higher. As a result, copper prices traded at a 9-week high. Finding support on near-term drivers Although Eurozone recession seems to be over, the pace of growth remains very slow. With the USD under pressure, and the Fed unwinding of its stimulus measures still hanging above the markets, the upside for commodities seemed to be limited. However, supply disruptions, weather related news and hopes of an economic recovery in US and China pushed the CRB-index higher after all. This week’s numbers 288 The CRB-index gained almost 3% during the past few days based on support for (base and precious) metals, oil and most soft commodities. The USD-weakening was also seen as a supportive factor. 0.3% Eurozone Q2 GDP came in stronger than expected at 0.3% (-0.2% prior). Especially the stronger growth in Germany pushes up the overall average. The Dutch Q2 GDP dropped by 0.2%. 1.3365 EUR/USD rallied to 1.3365 despite US data proved to be stronger than anticipated. Interest rate differentials are seen as the most important drivers.
Transcript of Weekly Commodity Update Group Economics · Weekly Commodity Update Group Economics 14 August 2013...
Weekly Commodity UpdateGroup Economics
14 August 2013
Lower Libyan output proves supportive
Last week news about the possibility of a rise in Libyan
oil output triggered some relief for oil prices. This week,
however, oil prices found some support based on the
news that strikes pushed Libyan oil production to the
lowest level since the 2011 civil war. Currently, Libyan
oil production is around 400,000 barrels per day. In
Graph: OPEC oil production (in %/total OPEC prod)
Source: Thomson Reuters, ABN AMRO
June, this was still 1.3 million barrels per day. The lower
output does not immediately lead to supply constraints as
there is ample supply and Saudi Arabia will be able to
meet any shortfall. In total, OPEC produces around 30.5
million barrels of oil per day. Nevertheless, the lower
Libyan output does increase worries about possible supply
shortages and leads to an increased risk premium based
on the spill-over risk. As a result, Brent oil neared USD
110/bbl. Also WTI was trading higher, partly due to Brent
support, but also due to another report of lower US crude
inventories. This is the fifth drop in weekly inventories in
the last six weeks. Nevertheless, the upside in oil prices
remains limited as the uncertainty about the timing of Fed
easing the pace of its asset purchases continues to hang
above the market.
Copper recovery continued
Copper prices at the London Metal Exchange (LME) have
risen by 8.5% since the low set at the end of July. Hopes
of a stronger than expected demand from China was the
main reason for the rally, which pushed all base metals
higher. As a result, copper prices traded at a 9-week high.
Finding support on near-term drivers
Although Eurozone recession seems to be over, the pace of growth remains very slow. With the USD under
pressure, and the Fed unwinding of its stimulus measures still hanging above the markets, the upside for
commodities seemed to be limited. However, supply disruptions, weather related news and hopes of an
economic recovery in US and China pushed the CRB-index higher after all.
This week’s numbers
288The CRB-index gained almost 3% during
the past few days based on support for
(base and precious) metals, oil and most
soft commodities. The USD-weakening
was also seen as a supportive factor.
0.3%Eurozone Q2 GDP came in stronger than
expected at 0.3% (-0.2% prior).
Especially the stronger growth in
Germany pushes up the overall average.
The Dutch Q2 GDP dropped by 0.2%.
1.3365EUR/USD rallied to 1.3365 despite US
data proved to be stronger than
anticipated. Interest rate differentials are
seen as the most important drivers.
However, also for copper prices, the Fed tapering
continues to hang above the market. We believe that
the impact of the Fed unwinding will have less impact
on base metals, including copper, than for most other
commodities. This is because of the cyclical character
of copper. As a result of relatively strong economic
growth in emerging Asia, demand for industrial metals
will remain robust. This will dash the effects of higher
yields and a stronger USD. Currently, copper is trading
at USD 7’272/tonne, which is below our expected
average of USD 7,400/tonne for 2013
Mixed direction in softs
Corn prices dropped to the lowest level since
September 2010 on the back of record crop
expectations in the US which will point to ample supply
next year. Crop expectations are improving due to the
favourable weather conditions. As a result, prices of
corn were pushed lower, and even more downside is
possible due to speculative trading, as the US
Department of Agricultural will update its forecast next
month (12 September). Wheat traded roughly in line
with corn and also continued its downtrend. All other
soft commodities traded higher. Cotton, for instance,
touched the highest level since mid-March based on
worries about the possibility of tight supplies in the US.
This, in combination with the cotton buying programme of
China, will keep the cotton supplies low.
Graph: Corn, wheat and copper (in USDc/bushel)
Source: Thomson Reuters, ABN AMRO
Low conviction move in gold
Since the Fed has started to sound more dovish clarifying
the difference between tapering bond purchases and the
start of the hiking cycle, the USD lost ground and gold
prices recovered. But the recovery in gold has been
volatile, relatively modest and with low conviction. It may
become stranger though, if the Fed continues to sound
very dovish and the USD falls under heavy pressure. But
we believe that this is unlikely. With INR weakness
ongoing, gold (priced in INR) will remain expensive.
Moreover, recent data show that physical gold demand
from China may also be slowing.
Commodity Prices
“Record crop expectations in the US will lead to ample corn supply next year”
Group Economics | Commodity Research
Contact information ABN AMRO | Group Economics:Primary area of expertise: Phone: E-mail:
Commodity Research:- Hans van Cleef Energy +31 20 343 46 79 [email protected]
- Casper Burgering Ferrous and Non-ferrous metals +31 20 383 26 93 [email protected]
- Georgette Boele Precious Metals +31 20 629 77 89 [email protected]
- Thijs Pons Soft commodities & food +31 20 628 64 37 [email protected]
- Mathijs Deguelle Soft commodities & food +31 20 344 21 79 [email protected]
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