Commodities Monthly Roundup ~ November 9th
The outcome of the US elections on oil prices remains uncertain, even as Biden looks to be the likely winner. This may be due to expectations that the Republicans will keep control of the Senate, holding back Biden. A divided Congress would prevent him from enacting major priorities such as healthcare, fighting climate change and providing aid to millions of Americans whose lives have been upended by the virus. It would also limit his power to introduce COVID-19 fiscal relief packages or anti oil legislation.
US fracking has been a major driver of oil prices since 2014, but what does the future hold for this industry under a Biden administration? Biden has openly stated his intention to phase out the oil industry, and fracking has been in his line of fire, although his position has seemed rather fluid, with threats to ban the practice or prohibit it only for federal lands with an overarching policy to transition to renewable energy. Not controlling the Senate will restrict his ability to target the oil industry.
From another angle, Biden’s approach to the middle east could result in increased Iranian oil exports and a sustained lower oil price. Fracking production cost are often sub US$20/bbl in the best shale, but most commentators agree that when capex and the higher cost oil fields are included the industry’s average cost is nearer US$50/bbl. If Iran is allowed to increase production towards previous levels (2.7 million barrels per day), the crude oil price could remain at or below this level for many years, preventing a healthy fracking industry recovery.
Oil prices received a modest boost on 4 November from expectations that OPEC+ would hold off on bringing two million barrels per day of oil supply back to the market. However, as the second wave of COVID continues to impact demand, short term prices look likely to decline further as oil in storage remains near 500 million barrels.
Inventory draws should gather pace as we move into 2021 with global demand at 92 million barrels per day, a drop off in shale production and continued OPEC+ supply restraint supporting a further reduction in storage inventories.
Base metals demand has been negatively impacted by comments from the Fed warning of significant risks to the US economy posed by the virus.
Turnover for LME aluminium was moderately low on Thursday with just under 12,000 lots exchanged, the lowest daily trading volume since October 27th. Total open interest however, remained on an uptrend, with total open interest on the LME now at 919,156 positions. MoM the metal has gained 7.32%.
Copper markets remain unconvinced of a Biden win and this uncertainty is feeding through to cautious position taking. MoM the metal is up by 3.89%.
Zinc futures on LME hit a high of $2,611.75 on 5 November following a drop in the USD as markets anticipate a Biden victory. There is limited further upside as mines are back in full production and a surplus in Asia. MoM Zink is up by 11.93%
Gold remains firmly anchored above $1900/oz as Biden edges closer to victory. The USD is in decline as investors price for a Biden win. Increasing stimulus packages resulting from the second round of COVID and the associated currency devaluations should continue to support gold.
Platinum prices are up slightly at $2,404 but remain in a tight trading range as the market awaits the outcome of the US elections. MoM platinum is up 2.02%.
Oil prices are set to go higher next year
WTI price analysis: Drops further below 100/50-day EMA confluence towards $38.00
Oil pushes up on U.S. inventory drop, supply restrictions
Biden win could cause a huge new oil glut
Oil price fundamental daily forecast – Bullish traders hoping OPEC + delays planned rise in output in January
Asians turn to gold during pandemic
Will gold price sell off or skyrocket? It all comes down to this?
Australia-origin copper concentrates bound for China are being diverted on the water and ahead of shipment next year
European premiums firm on improved demand, steady contango; US, China markets stagnant
China’s hot-rolled coil exporters raised their prices on Friday November 6 amid domestic gains, while the weakening US dollar added fuel to the fire
Call +44 (0) 203 884 992 to discuss further with an advisor.