The falls in the price of two key commodities, oil and copper, last week told us something that investors were not listening to.
At the same time, a surprise rise and then a cooldown in the price of nickel provided a timely reminder of underlying weakness in key metals.
The message is that commodity markets are still dominated by the interplay of the value of the US dollar and concerns about 2023 demand, especially as most economies are expected to slow.
That is why oil prices gave ground last week as Brent and West Texas Intermediate (WTI) lost sharply on Thursday and Friday.
Copper also fell as the belief that the US dollar will continue to fall as the US Federal Reserve leads a central bank “pivot” to a lower and slower pace of growth faded.
That ‘pivot’ idea now seems like a distant dream.
The US dollar finished with a small gain for the week and the Australian dollar finished above 66 US cents.
Brent fell 8.7% for the week, ending at $87.62 a barrel and WTI fell nearly 10% to end just above $80 a barrel.
December crude oil fell 1.6% on Friday, adding to Thursday’s decline of 4.16% in what was a surprisingly negative two days for both Brent and WTI.
With the missiles slamming into nearby Poland and killing two farmers, oil rose for a brief time, but the potential hot spot quickly cooled as the US quickly dismissed the theory of Russian responsibility.
Prices reacted more to the latest OPEC forecasts, which again cut its oil demand forecasts due to the slow reopening of China, still strangled by its zero covid policy.
There have been more than 20,000 cases a day in China for the past six days, which is close to a 6-1/2-month high. About 25,000 on Saturday.
OPEC’s lower demand forecast suggested a gloomy outlook for the global economy in 2023, weighing on investor sentiment.
Bloomberg reported on Friday that the G-7 countries plan to announce their maximum price for Russian oil this week, possibly on Wednesday. That could be a positive, but it could also end up negative with the market confused.
The price cap seeks to increase sales of Russian oil by prohibiting G-7 companies from providing the shipping and services necessary to ship Russian oil anywhere in the world, unless that oil is sold below the price cap.
Bloomberg said the cap will take effect for new (ship) bookings after December 5.
The price cap embargo should support global oil prices as it is likely to limit Russian oil exports and reduce global oil supplies, but another 0.75% rate hike from the Fed? Federal in mid-December would make prices go down?
Baker Hughes reported Friday that active US oil rigs in the week ending November 11 rose by 9 rigs to a 2-1/2-year high of 622 rigs. That’s more than triple the 17-year low of 172 rigs seen in August 2020, suggesting an increase in US crude oil production capacity next year.
The gas rig count increased by two to 157. The total US rig count increased 219 rigs from last year’s count of 563 with oil rigs up to 162, gas rigs up to 55 and miscellaneous up to two.
Metal prices are catching their breath after their strong rally since the beginning of the month with nickel rising and falling in an inexplicable mini repeat of the big price boom and bust earlier in the year.
All eyes are on China and its new measures to stimulate demand for metals as Covid cases continue to rise. Nickel jumped over $30,000 midweek out of nowhere and ended Friday around $25,300 a tonne for the January metal.
That sent the metal down nearly 6% for the week after peaking at $30,223 a tonne. It had risen 20% in five days and fallen 15% in the three days to last Friday.
LME copper eased a bit to around $8,050 a tonne, but Comex copper in New York lost more than 8% to close at $3.63 a pound.
Iron ore prices nearly topped $100 a tonne but only managed to hit $98.60 on Friday on the SGX (Singapore Stock Exchange Commodity Market), up $7.32 a tonne over week.
Newcastle thermal coal rose to $335 a tonne after dipping below $300 a tonne.
The December price rose 12% during the week, while the January-February contract rose 7.7% to $306.50 a tonne on Friday.