Iron Ore: Also topping the leaderboard this past week was iron ore futures traded in Singapore which rallied strongly, thereby continuing to recover from the 27% tumble they took last month when China made their first, and so far futile, attempt to curb surging commodity prices. In defiance of the government, demand from Chinese steelmakers remains strong at a time where the market also keeps an eye on a potential supply disruption in Brazil.
Grain markets trading mixed but generally lower on the week following the monthly World Agriculture Supply and Demand report (WASDE) from the US Department of Agriculture (USDA). Corn – just about - headed for a second weekly gain after the report pegged supplies below expectations due to strong demand from the ethanol and export sectors. Adding to this, weather models forecasting more dry weather in a key US production region. Wheat traded flat on the week after having recovered from a recent correction on worries that drought would reduce production. Soybeans meanwhile remained under pressure after the USDA said stockpiles will be bigger than expected with high prices curbing demand for soybean oil and soymeal.
Crude oil traded higher for a third consecutive week with Brent gaining a foothold above $70 while WTI managed its highest close since 2018. The pace did slow down somewhat with the market, despite a very bullish outlook for the second half of 2021, beginning to contemplate whether most of the Western Hemisphere recovery in demand has been priced in by now.
The potential short-term negative price impact of an Iran nuclear deal was seen on Thursday when algorithms that often control a large percentage of daily volumes in the futures market temporarily choked after misreading news regarding the US lifting sanctions on one Iranian person, and NOT the country as a whole. It briefly drove the price of Brent and WTI down by more than 2% before reverting back to the starting point. According to TankerTrackers.com, Iran’s own fleet of supertankers is currently storing 70 million barrels of gas condensate, and it has been rising lately due to insufficient demand from China, its biggest customer.
Monthly oil market reports from EIA, OPEC and IEA all painted a supportive outlook for crude oil demand with the IEA now expecting to see global oil demand return to pre-virus levels late next year. While a return of Iran to the global market within a few months potentially could supply the additional barrels required for the remainder of the year, there is no doubt that the OPEC+ group of producers currently have the ability and strength to dictate the direction of oil prices. However, by keeping the market artificially tight over the coming months, they risk levelling out the playing field in 2022 when the IEA expects non-OPEC growth, due to high prices, could rebound by 1.6 million barrels.
Estimating a price target on a politically-controlled commodity such as oil is very difficult, and while the risk of a short-term correction exists, the current trajectory points to higher prices with Brent potentially aiming for the 2019 high at $75.