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Commodity markets rally with positive gains, led by oil, iron ore, and copper

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2023-09-04

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Commodity markets experienced an uncommonly positive week as various commodities, including iron ore, gold, copper, and oil, saw significant gains.

Yet again, oil takes the spotlight in the commodity markets, not due to a decline in US rig use this time, but due to reports suggesting an extension of Saudi Arabia and Russia's production caps for an additional month, and possibly longer.

These reports caused a sharp surge in US crude oil prices on Friday, driving a 2.3% increase that contributed to a weekly gain of 7.3%. West Texas Intermediate closed at $US86.05, while Brent crude edged slightly higher (with news reports arriving late in the session) to $US88.99 per barrel. These increases are attributed to ongoing production cuts by major producers, leading many analysts to anticipate Saudi Arabia extending these cuts through October.

Russia has also reportedly agreed to further output reductions as part of OPEC agreements. Russian Deputy Prime Minister Alexander Novak is expected to announce these plans during the upcoming week, according to reports from Friday.

Analysts predict that Saudi Arabia will extend its 1 million b/d oil output cut into October, following a substantial drop of over 10 million barrels in US commercial crude stocks in late August.

Meanwhile, US oil rig numbers remained stable last week, marking the first time in several weeks. The weekly report from Baker Hughes, an energy services group, indicated that oil rigs remained unchanged at 512, while gas rig numbers fell by one to 114. Compared to a year ago, there were 596 oil rigs, 162 gas rigs, and two miscellaneous rigs in operation. Overall, the total rig count in the US this week was 631, down from 760 a year earlier. Notably, Texas, the leading producer, lost one rig to 306, while Colorado gained one, and West Virginia lost one.

In North America, oil and gas equipment declined by four rigs to 818 week-over-week, compared to 968 at the same point last year. Canada's rig count fell by three to 187, compared to 208 a year earlier.

Gold prices also strengthened, with the Comex front month rising 1.2% over the week to close at $US1,966.20 per ounce.

Comex copper experienced a more than 2% surge to $US3.85 per pound, buoyed by positive news from China regarding stimulus measures and support for the property sector. In London, the LME three-month copper price ended around $US8,400 per tonne.

The news that troubled Chinese developer Country Garden had secured an extension for payments on a 3.9 billion yuan ($537 million) onshore bond is expected to provide a boost today. This positive development might enhance Chinese markets and major commodities on Monday, especially as the US observes the Labor Day holiday.

Iron ore prices may continue to rise after recent upward movement. The price of 62% Fe fines on the SGX futures market closed at $US114.45 per tonne on Friday, up from $US116.66 per tonne the previous Friday.

SGX premium Australian coking coal futures also experienced gains, reaching over $US271 per tonne on Friday, reflecting a nearly 5% increase for the week in tandem with rising iron ore prices.

However, Newcastle thermal coal prices eased by $US1 per tonne to $US159 per tonne for the October contract on the ICE exchange.

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