COMMODITIES GETTING CONSOLIDATED
WTI crude futures were trading around $82 per barrel on Monday as investors continued to assess the global demand outlook while bracing for further sanctions on Russian oil. Still, trading will likely remain subdued as many Asian markets were offline for the Lunar New Year holidays. Last week, both the IEA and OPEC offered a bullish outlook for 2023, saying that the reopening of the Chinese economy will boost demand while driving prices higher. On top of that, the rise in China’s traffic ahead of the Lunar New Year vacation bodes well for fuel consumption. On the supply side, the EU and the G7 nations will cap prices of refined Russian products starting in February, in complement to their price cap on Russian crude in place since December and an EU embargo on imports of Russian oil by sea. At the same time, OPEC+ decided in December to stick with their policy of restricting global supplies by 2 million barrels per day, a move due to run through the end of 2023.
US natural gas futures were trading below $3.4/MMBtu, closing in on their lowest level since June 2021, as soaring domestic production and high storage levels offset prospects of a recovery in demand amid forecasts of a cold spell. US natural gas production is likely to grow more than 2% this year to a record daily average of 100.3 billion cubic feet, the Energy Information Administration said. At the same time, EIA data showed that utilities unexpectedly injected 11 bcf into storage last week. Adding to the bearish tone, the Freeport LNG export plant in Texas, forced to go offline in June following a fire, again delayed the restart to the second half of January, leaving more supply on the domestic market. Still, arctic weather will move into the United States next week, resulting in below-normal temperatures, which, in turn, should boost demand for heating and push prices higher.
Gasoline futures continued their upward trend toward $2.6 per gallon, the highest level in more than two months, tracking gains in other energy-related commodities on optimism about future fuel demand. On the supply side, OPEC and its allies decided in December to stick with their policy of curtailing oil output, restricting global supplies by 2 million barrels per day until the end of 2023. Meanwhile, the latest EIA report showed that gasoline inventories in the US rose by 3.483 million barrels in the week ending January 13th, compared to analysts' expectations of a 2.529 million build.
Heating oil futures were trading around $3.5 per gallon, closing in on their highest level since late November, boosted by robust demand and domestic inventories draw. The winter heating season, which typically runs from October to March, is expected to keep demand for the fuel used for diesel and home heating above average. Also, the latest EIA data showed that distillate stockpiles, including diesel and heating oil, fell by 1.939 million barrels in the week ending January 13th, while analysts expected a 0.122 million increase.
Spot gold prices were below $1,925 per ounce on Monday, easing from the nine-month high of $1,931 touched in the previous session despite a weaker dollar as investors continued to assess expectations of tighter monetary policy by major central banks. While money markets expect the Federal Reserve to raise its finds rate by a softer 25bps in its next meeting, FOMC members have repeatedly stated that the fight against inflation is far from over, hinting that slower interest rate hikes may continue past the 5% terminal rate that is currently priced in. In the meantime, the European Central Bank signaled that it will continue its aggressive tightening path to bring down soaring inflation in the bloc, with policymakers paving the way for two more 50bps rate hikes. Gold is highly sensitive to the policy outlook for major central banks as higher interest rates raise the opportunity cost of holding non-yielding bullion assets.
Spot silver held above $24 per ounce, not far from a near nine-month high of $24.5 touched on Monday, amid a weaker US dollar and expectations of a slower pace of Federal Reserve rate hikes. Investors see a reduction of Fed's rate hikes to 25 bps for the next meeting, after the institution delivered lower 50 bps in December, and following four consecutive 75 bps increases. Elsewhere, the lack of investment demand could weigh on the commodity price. Silver closed 2022 with minor gains due to the USD strength and higher bond yields as central banks across the globe raised borrowing costs to combat high inflation.
