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Concerns about global demand continue to impact oil prices

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2023-11-13

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Oil prices might have bounced on Friday, with the rest of Wall Street but they still underwent a sell-off last week.

US West Texas Style crude rose 2.1% on Friday to end at $US75.32 while Brent was up by around 2% to close at $US81.70 a barrel

For the week Brent fell 4.1% while WTI lost 4.4% as fears about the impact of the Israel and Hamas war on supply from OPEC is a less worrying unknown outcome.

But demand is once again a source of concern, particularly in China, which last week presented mixed economic data and will back it up again with more weak data this week.

As a result, oil has fallen for the third week running, a trend that could prompt OPEC to do more to support prices above the agreed to cuts of 1.3 million barrels a day until the end of 2023.

At one stage, prices of both crude types were at their lowest since mid July.
"The threat of disruptions to supplies from the Middle East continues to fall," ANZ Research said in a note on Friday.

"The conflict remains well contained within Gaza, despite concerns it would escalate as neighbouring Arab nations show their displeasure.”

The number of oil rigs operating in the US fell by two last week, according to data from energy-services firm Baker Hughes (BKR).

The rig count for oil dipped to 494 from 496 on a weekly basis, while the tallies for gas and miscellaneous rigs were unchanged week over week at 118 and four, respectively.

A year earlier, the US had 622 oil rigs, 155 gas rigs, and two miscellaneous rigs in operation, Overall, there were 616 rigs operating in the US this week, compared with 779 a year earlier.

Market optimistsalso found support from Saudi Arabia after the country's energy minister said that oil demand is healthy and that the recent drop in prices is due to speculators,

"A similar warning was issued in May 2023, which was quickly followed by a subsequent cut to production," ANZ analysts wrote on said.

Reports last week said refiners in China, the largest buyer of crude oil from the world's largest exporter Saudi Arabia, asked for less supply from Saudi Arabia for December.

The silly Saudis and Russians don’t realise that their production cuts are a continuing admission that oil demand remains weak around the globe as we head towards 2024 when many forecasts say recession will be a more likely outcome for some economies.

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Gold and copper prices lost ground last week but iron ore remained solid, closing above $US126 a tonne in futures trading in Singapore.

Gold shed 2.86% over the week - its worst five days of trading for more than a month as the Comex front month settled at $US1,937.70 an ounce and finished the week $US5 an ounce higher in after hours trading late Friday.

The day’s loss of 1.4% doubled the week’s loss and came as Thursday’s market burp on a sudden rise in US bond yields (after a 30 year bond auction was poorly received).

Friday saw yields settle back, confidence return (especially after traders had more time to wonder about more tough talking from Fed chair Jay Powell late Thursday).

But the late downgrade of US debt by Moody’s will get volatility and uncertainty back into markets this week as it came with the sudden realisation that the US faces another juvenile debt and funding brawl this week in the US Congress.

Moody’s moved its US rating outlook to AAA negative, from AAA stable - not a full downgrade, but it will be enough to loom large over the US dollar and Treasury bond yields and trading for the next year or so, unless the Republicans do something very silly in Congress and send the US into default.

Normally the moody’s outlook change and the fact that Fitch and S&P Global no longer have the US at a AAA rating would be a bull point for gold, but the impact on the value of the metal will be problematic going forward with still too high inflation, fears about recession still lurking and political pressures in the US with elections a year away (not to mention the wars in Israel and Ukraine).

China’s weakening economy won’t help as well - the economy is facing deflation in consumer prices because of plunging pork prices and weak demand domestically and internationally. is driving deflation at the produce price level.

That’s why Comex copper dipped 2% last week to end at $US3.59 in New York and why it will be further pressured this week by the monthly data on industrial production, retail sales and urban investment.

Following Powell's comments, benchmark 10-year U.S. Treasury yield rose from more than one-month lows, making non-yielding bullion less attractive for investors.

Traders pushed out bets on the Fed's likely first interest-rate cut to June of next year from May earlier. Higher rates raise the opportunity cost of holding gold, which yields no interest.

Palladium slipped 1.3% to $US979.43 per ounce to its lowest levels since 2018 and its worst week in 11 months.

Platinum, eased 0.2% to $US857.61 and its worst weekly performance since the week ended June 18, 2021. Silver rose 0.3% to $US22.30 an ounce.

In Singapore 62% fe iron ore ended the week higher by a couple of per cent at $US126.60 a tonne, up from $US122.94 a tonne the week before. That’s more than 22% above the June 30 level of just over $US103 a tonne.

And a small rebound in the price of Australian thermal coal in Newcastle where the iCE market showed December coal at $US129.50 a tonne, up 3% over the week

 

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