Commodity markets

Oil: How dependent is Saudi Arabia on US goodwill?

  The Brent crude spot price declined of late to as low as USD 58 per barrel. The main factor driving this renewed price slide was speculation that Saudi Arabia may expand production – in return for the recent public backing which the United States has given Riyadh in connection with the “Khashoggi affair.“ Saudi energy minister Khalid Al Falih announced that the desert state had ramped up its crude output from 10.6 mbd in October to “more than 10.7 mbd“ last month, explicitly in response to customer demand. However, anonymous speculation is flying around the market in the teeth of this official statement, claiming that production has been boosted to more than 11 mbd. In the context of the current “surplus supply debate“ and of market expectations that a supply cut by OPEC+ is in the immediate offing, it would obviously be extremely counterproductive for the price of black…

Crude oil – price sags to USD 65 following an exaggerated period

A barrel of Brent crude oil now only costs about USD 65 – only six weeks ago the price was as much as USD 85. Back then, there was even speculation it might possibly shortly hit the USD 100 mark. In volatile market phases, six weeks can be a long time. However, the 24% crunch in the price of North Sea oil cannot be completely explained by the fundamentals. The past three months saw exaggerated movements in both directions. In August, price conditions were decidedly bullish: The USA had just announced initial sanctions against Teheran. The US hinted that buyers of Iranian crude oil should reduce their imports to zero to avoid sharp secondary sanctions. In this context, the market started factoring in Iranian export losses of 1.5-2.0 million barrels a day (mbd). At the same time, domestic policy challenges in Libya meant that output there fell from 1.0 mbd…

Dr. Copper doesn’t always get the diagnosis right

The copper price has come under heavy pressure in the last few months. Compared to its summer high it has slumped by around 16% to USD 6,200 per tonne. Since copper is used in many very different sectors, such as for example electrical engineering, the construction industry and telecommunications, “Doctor Copper” is deemed to be a leading indicator for economic growth. Such a price slump therefore attracts a lot of attention among investors. Dr. Copper really does function as a leading indicator, but at the moment we doubt whether the diagnosis of the state of global economic health is correct: in our view the significant price correction is mainly due to the trade dispute between the USA and China and the resultant anxiety that Chinese demand for copper could possibly weaken significantly. As China accounts for more than 50% of global demand, it comes as no surprise that especially large…

Crude oil price under increasing pressure – forecast raised

Despite significant tension ahead of its meeting, the OPEC-NOPEC coalition (OPEC+) agreed at the end of June to increase its cumulative output – in response to the tight global supply situation. The agreement was facilitated by the formulation of a final declaration that was kept deliberately vague, which allowed practically all participants of the meeting to declare themselves as diplomatic OPEC winners. In his game of atomic poker with Iran, US President Trump has yet to personally reach a definitive decision on how rigorously – and within which timeframe – he wants to force Teheran’s crude oil exports from the market. Instead he recently let the US Department of State make its mark with a “zero tolerance stance” (short-term total embargo, no exemptions from secondary sanctions for Iran’s customers). Although this position was mitigated somewhat by other voices, the surprisingly harsh sabre-ratting by the US is likely to lead to…

Trump briefly turns the global aluminium market upside down

Despite the import duty imposed by the US, the price of aluminium developed quite inconspicuously in the first quarter of 2018, with a slight shift seen only in price levels in the US. However, this started to change suddenly at the start of April:  The US administration slapped sanctions on Russian companies and oligarchs because of their role in the Russian power structure. Russia is accused here of having interfered in the 2016 US presidential election, among other things. Oleg Deripaska, En+ Group plc’s largest shareholder, was also included in the list. Given that En+ Group owns about half of the Russian aluminium giant Rusal, the implementation of the US sanctions could have significant implications for the global aluminium market. The Russian company is the world’s largest aluminium producer outside of China, supplying the US with around 700 thousand tonnes of aluminium. If the market were to be short of…

Crude oil at highest level since 2014 – growing likelihood of a final upsurge in the crude oil price

Demand for crude oil is booming, and the price is spiralling up. Following an initial phase of stagnation, the OECD industrial inventories which have been the subject of investor focus are now heading steadily downwards in response to the „production limitation efforts“ started in early 2017 by 14 OPEC and ten NOPEC countries. With increasingly aggressive rhetoric, Saudi Arabia and Iran are once again quarrelling at several fronts over the issue of regional hegemony in the Middle East. The USA is considering whether to quit the nuclear agreement with Iran in the not too distant future if an improvement agenda for what President Trump calls „the worst deal ever“ cannot be put in place by May 12. And the aforementioned OPEC/NOPEC coalition is giving vociferous consideration to extending its market control cooperation, despite the fact that it will soon have reached its self-set inventory normalization target. Given this abundance of…

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