Global commodity prices staged a comeback this past week after the dollar failed to hold onto recent gains and rising stock markets helped to drive renewed risk appetite. The weaker dollar was led by the British pound which is headed for its best week since January following a week of Brexit drama in Parliament. The euro, meanwhile, managed to climb higher and back into the range that has prevailed for more than six months.
Gains across commodities were broad-based and have occurred at a time when hedge funds have cut bets on rising prices across 24 major commodities to the lowest in three years. The is due in particular to an overwhelmingly negative view on agricultural commodities.
The energy sector traded higher with WTI crude oil reaching a four-month high before running into profit taking ahead of key technical and psychological levels. Oil remains supported by tightening supply, both voluntary (from Saudi Arabia) and forced (from Iran and Venezuela). Worries about growth and future demand for crude oil remain just that at this stage, with the market instead responding to the continued tightening of supply.
Crude oil broke higher with Brent and WTI both reaching four-month high, in the process clawing back half of their October-December losses. WTI’s discount to Brent narrowed in response to signs of slowing US production growth and a surprise drop in stateside crude inventories.
Monthly reports from the three major forecasters of Opec, the Energy Information Administration and the International Energy Agency all kept global demand growth outlooks close to unchanged for a fifth consecutive month. With demand seemingly not yet seeing any impact from weaker global growth, the market was instead left to focus on the price-supportive cut in production from the Opec+ group of producers.
In addition, a 1.6 million barrel/day involuntary production decline from Venezuela and Iran during the past year has provided an additional layer of support. The six-month waiver that the US granted to buyers of Iranian oil back in November is approaching its expiry and it has raised some questions about what will happen next.
Industrial metals traded higher with zinc and palladium leading from the front amid continued concerns about tightening supply. Gold gyrated around $1,300/oz with traders left confused in the wake of the recent roller-coaster action.