COMMODITIES UNDER PRESSURE AMID TIGHT GLOBAL SUPPLIES

WTI crude futures bottomed below the $71 per barrel level, hovering close to levels not seen since December 2021, as investors weighed persistent demand concerns against tight global supplies. A deteriorating outlook for global demand has been keeping markets on edge, with tighter financial conditions across most of the developed world denting economic activity while pushing back on the need for fuel. Still, investors welcomed China’s loosening Covid restrictions that could revive energy consumption in the world’s largest crude importer. On the supply side, the Keystone Pipeline that connects fields in Canada to refiners in the US Gulf Coast remained shut, thus offering some relief prices. On top of that, President Vladimir Putin’s threatened to cut production in retaliation to a Western price cap on Russian crude, a move from the EU, G7, and Australia that so far had little impact on global markets.

US natural gas futures skyrocketed 10% to around $7/MMBtu, paring much of their losses from an unseasonal slump at the beginning of December, amid forecasts for much colder weather and higher heating demand than previously expected. Frigid temperatures and heavy precipitation on the West Coast have fueled natural gas demand at a time when storage inventories are below average. Meanwhile, the Freeport LNG export plant in Texas, forced to go offline in June following a fire, expects to begin bringing operations back online by year's end, in another delay due to pending regulatory approval. Still, prices remain subdued for this time of the year, as milder weather in most of October and November delayed the winter heating season while record production levels added to the bearish sentiment. EIA reported that US production of dry natural gas, used primarily in homes and businesses for heating, cooking, and electricity, is set to break an annual record of 98.0 Bcf/d in 2022.

Gold fell below $1,790 an ounce on Monday, snapping a four-day advance as the dollar gained on stronger-than-expected US producer price data, while investors prepare for US consumer price data and the Federal Reserve’s interest rate decision this week. The US CPI report on Tuesday will be the last major data before the Fed announces its policy decision on Wednesday. The US central bank is widely expected to deliver a smaller 50 basis point rate hike this week, though the likely peak for rates remain highly uncertain as inflationary pressures stay elevated. Investors also turned cautious as other major central banks including the European Central Bank, the Bank of England and the Swiss National Bank are set to decide on monetary policy this week as well. Gold is highly sensitive to the rates outlook as higher interest rates raise the opportunity cost of holding non-yielding bullion and dent its appeal, and vice versa.

Silver futures rose to above $22.6 per ounce at the start of December, hovering at levels not seen since May amid expectations for a slowdown in monetary tightening by the Federal Reserve. Fed Chairman Powell stated that it is likely that the US central bank will slow the aggressiveness of rate hikes this month, easing demand for the dollar and driving investors toward bullion. Besides bullion, softer rate hikes in the US and a cut in the reserve ratio by the PBoC supported expectations of higher demand for industrial silver usage as electricity conductors, tracking the rebound for copper. Signs of low supply also supported prices, as New York’s COMEX inventories fell 70% in the last 18 months to just over 1 million tonnes. Also, the London Bullion Market Association stockpiles fell for the 10th straight month to a record-low 27.1 thousand tonnes in November.

Steel rebar futures fell to below CNY 3,650 per tonne, retreating sharply from the near 2-month high of CNY 3,760 touched on December 9th as concerns around the slowing Chinese economy outweighed measures to stimulate the country’s vital construction sector. Turnover of foreign trade in China fell sharply in November as domestic consumption and external demand continued to decline, while the NBS PMI pointed to the sharpest contraction in factory activity in seven months during the period. Commodity traders worldwide were also cautious of taking large positions weak of important macroeconomic developments, including the release of US CPI and the Fed’s rate decision. Still, growth-oriented policies by Chinese authorities kept steel prices from falling further. The country’s top commercial banks have agreed to extend $162 billion in new credit lines for private developers, while the PBoC cut the reserve requirement ratio by 25bps to support lending to the debt-ridden sector.