Sentiment in the oil market remains negative despite the growing noise of potentially deeper OPEC+ cuts. Meanwhile, a weaker USD and lower treasury yields continue to push gold higher
Energy - Attention Remains on OPEC+
The oil market came under further pressure yesterday despite growing reports that Saudi Arabia is pressing the broader OPEC+ group to agree to deeper supply cuts when they meet on Thursday. ICE Brent settled just below US$80/bbl as the market increasingly focuses on a looser oil balance early next year.
The extension of additional voluntary cuts from Saudi Arabia should erase most of the surplus expected in 1Q24. However, if OPEC+ want to provide more solid support to the market and ensure that we do not see stocks building early next year, they will need to agree on deeper and broader cuts.
The Saudis and OPEC+ have made a habit of surprising markets in recent years when it comes to their meetings. However, with aggressive cuts already in place, it does leave one wondering the degree to which the group could surprise the market with deeper-than-expected cuts.
The latest Commitment of Traders report was released yesterday (delayed due to Thanksgiving last week), and unsurprisingly, given the weakness seen in the market, speculators continued to reduce their net long in ICE Brent over the last reporting week. The managed money net long fell by 15,880 lots to 155,105 lots as of last Tuesday, which is the smallest position since early October.
The move was predominantly driven by longs liquidating. Similarly, for NYMEX WTI, speculators reduced their net long by 19,751 lots over the last reporting week to 104,545 lots - the smallest position since July. While longs are liquidating as sentiment in the market sours, there is also likely an element of speculators taking risk off the table ahead of the OPEC+ meeting.
European natural gas prices came under further pressure yesterday with TTF settling more than 5.7% lower on the day. The storage situation remains very comfortable at slightly more than 97% full. While storage draws are starting to pick up in pace they still remain at record levels for this time of year.
We continue to forecast that European storage will end the 23/24 heating season at somewhere between 45-50% full, which, while lower than last year, is still very comfortable and above average. Reduced volatility in the gas market has also seen ICE reduce initial margins for TTF futures by 13% to EUR13.86/MWh.
Metals – Gold Surges to Six-Month Highs
Gold climbed to its highest level since May yesterday amid USD weakness and lower US Treasury yields. The market will be closely watching US data releases this week, including inflation data and Q3 GDP numbers. Meanwhile, gold premiums in Asia, particularly in India and China, have been under pressure as higher prices hamper seasonal demand.
Gold dealers in India were heard to be offering discounts of up to US$6/oz (vs. US$3/oz a week earlier) over official domestic prices, while premiums in China fell to US$20-US$40/oz (vs. US$43-US$58/oz a week earlier) over global spot prices last week.
In base metals, aluminium prices have been supported by ongoing production curbs in China’s southern Yunnan province. Smelters in the region are reportedly planning to reduce aluminium output again this winter amid declining hydropower supply during the dry season.
A total 1.16 mtpa of aluminium smelting capacity is set to be halted and is expected to remain offline until May 2024, when the rainy season usually begins. This will mark the third consecutive year that Yunnan smelters have reduced output during the dry season. Further cuts are possible.
Agriculture – UNICA Reports Higher Cane Crush
The latest fortnightly report from UNICA shows that sugar cane crushing in Center-South Brazil increased by 32% year-on-year to 34.8mt over the first half of November. The cumulative sugar cane crush for the season stands at 595.4mt, up 15% YoY.
Meanwhile, sugar production rose 31% YoY to 2.2mt over the first half of November with total sugar output up 23% YoY to 39.4mt in the season so far. Around 49.8% of cane was allocated to sugar in the fortnight, higher than the 48.6% allocated to sugar in the same period last year, as higher sugar prices prompted mills to increase production levels. CS Brazil will produce a record amount of sugar in the current 2023/24 season.
The USDA’s weekly crop progress report for the week ending 26 November shows that the US corn harvest is largely complete with around 96% of area harvested, slightly above the five-year average of 95%. As for wheat, the data shows that 48% of the winter wheat crop is rated in good to excellent condition, higher than 34% seen at the same stage last year.
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