Energy
This morning, the oil market continued to grow. ICE Brent has risen above US$73/bbl while WTI is moving closer to US$70/bbl.
The price action last week saw Brent rally more than 11%, indicating that momentum is on the rise. The market’s recent strength has been driven in part by the US Gulf’s category-4 hurricane Ida. The Bureau of Safety and Environmental Enforcement, (BSEE), 1.74MMbbls/d of US Gulf of Mexico (GoM), oil production have been shut down.
This is 95.65% of the total US Gulf of Mexico (GoM) output. 93.75% of US GoM natural gas production was also shut down. Although the storm has been a bullish event for oil prices, it could change quickly. The hurricane has shut down more than 2MMbbls/d worth of refining capacities.
It is not clear which option will bring about a faster return: offshore oil production or refining capacities. If the former, then we might see an increase in crude oil inventories. This would not be a good sign for oil prices but would be helpful for refined product cracks. The Colonial pipeline that runs from Houston to East Coast was also affected. The operator has temporarily closed lines 1 and 2, which run from Houston to Greensboro in North Carolina. This could result in tighter regulation on the US East Coast’s refined products market.
As we progress through the week, there is the possibility of more volatility. OPEC+ will meet for their monthly meeting on September 1. After the recent price recovery, we don’t expect any fireworks from the group. We expect them to continue their planned easing of supply cuts. OPEC+ plans to increase their output by 400Mbbls/d from now until the end. This will be the first OPEC+ gathering since the US administration urged OPEC+ supply to grow further. This idea is unlikely to be considered by the group.
According to the latest positioning data, speculators have slightly decreased their net long in ICE Brent during the last reporting week. As of Tuesday, the managed money net short was down by 8,854 lots. This leaves speculators with a net net long of 245,964 tons. This was mainly due to longs liquidating. NYMEX WTI also saw a similar decrease. The net speculative long in WTI decreased by 7,188 lots, to 272,926 tons.
Metals
After Jerome Powell’s speech at Jackson Hole Symposium, spot gold prices reached their highest level since July 31st, they traded at their highest levels in over a year. Powell’s remarks were more cautious than those of a few regional Fed presidents. Tapering could start this year, but much will depend on data and how the delta variant spreads. The market will therefore be watching the US jobs report, which is due to be released at the end of this week. We could still see a strong number for a September taper announcement.
China’s National Food and Strategic Reserves Administration has announced that they will release the third group of metals from state reserve reserves on September 1. This latest release will include 70kt aluminium, 50kt zinc and 30kt copper. A total of 270kt have been taken from reserves to date.
According to Shanghai Metals Market, Changji in Xinjiang in China required five local aluminium smelters in August to reduce output. This would lead to a reduction of approximately 360kt in annual capacity.
Agriculture
The International Sugar Organization has raised its sugar deficit forecast for the 2021/22 season from 2.65mt to 3.83mt. This is a significant increase over what was previously forecast. The shortage of sugar in Brazil this year due to frost should be a concern. According to the organization, Brazil’s sugar production will fall by approximately 4.45mt YoY in 2022/22.
This is in contrast to healthy production growth in Thailand. Global production is expected to increase marginally by 0.2% YoY to 170.6mt. The ISO projects that sugar consumption will rise at a healthy rate of 1.6% YoY up to 174.5mt by 2021/22.
