Industrial metals, led by copper, was heading for its first weekly gain in six. While demand has fallen, the price has been supported by the risk to supply from virus-related mining disruptions. In addition, the sector stands to benefit from government initiatives to mitigate the impact of the pandemic.
Investment metals led by gold have seen a very mixed month. Gold has held its own with strong haven demand through ETF’s offsetting headwinds from lower inflation expectations, a stronger dollar and weak demand in key markets such as India and China. Silver’s 50% link to industrial applications helped send it sharply lower with its relative cheapness to gold rising to a multi-decade high.
Crude oil: Extreme volatility reigns in the energy market as the market has swung between focusing on a total collapse due to lack of storage and renewed hopes about production cuts. Having fought off sellers at $20/b, WTI crude oil surged on news that Trump was seeking a production cut deal with other major producers. While countries like Russia and Saudi Arabia undoubtedly have been shocked by the collapse in demand and price, it is the immediate threat to the North American oil industry which triggered the prospect for a deal to be struck. During the past week, several US and Canadian oil varieties traded below $10/b and well below the cost of keeping operations alive.
The market rallied into the weekend on news that an OPEC-organized meeting of producers on April 6 would discuss a 10 million barrels/day production cut. A cut of this magnitude would do little to offset the current loss in demand, estimated at between 20 and 35 million barrels/day. It would, however, buy the market a bit more time to recover from the pandemic before running out of storage capacity. With current volatility above 100% and the risk of renewed weakness, investors looking for a longer term bet on rising oil prices will be better off looking at individual oil companies with strong balance sheets or ETF’s providing exposure to a basket of oil companies.