At Saxo Bank, we focus our stock market attention on equity themes more than sectors and the above table shows the historic divergence seen this past year between former stock market darlings such as e-commerce, crypto & blockchain as well as bubble stocks personified through Cathie Wood’s ARK Innovation Fund. At the top of the table, we find our commodity basket which comprises 20 major companies involved within the three major sectors of energy, metals and agriculture, as well as defense given the increased focus on security following Russia’s invasion of Ukraine.
In a recent online seminar and in a podcast on MACROVoices I highlighted the reasons why we see the commodity rally has further ground to cover, and why they may rise even if demand should slow down due to lower growth.
Crude oil headed for its second weekly gain with the focus switching from the risk of slowing demand due to Chinese lockdowns and interest rate hikes, and back to supply which continues to tighten. OPEC+ announced another 432k barrels/day increase in oil production for June but with OPEC10 (those with quotas) trailing by 800k barrels/day in April and Russia and Kazakhstan being other laggards, the group is currently not able to deliver the barrels they have targeted. In addition, the EU ban on Russian oil imports and a surprise US announcement about starting to refill its SPR already this autumn also underpinning the price.
Continued focus on a slowdown in China helped prevent crude oil prices from surging higher after the European Union announced steps to remove its dependency on Russian crude and distillate products over the coming months. Stockpiles of middle-distillates in Singapore and New York, two major trading hubs declined further, amid a worsening global shortage, especially for diesel, the workhorse of the global economy. The drop in Singapore despite China’s lockdowns reflects a pickup in Asian consumption outside of China.
We stick to our wide $90 to $120 range call for Brent during the current quarter while maintaining the view that structural issues, most importantly the continued level of underinvestment and OPEC’s struggle to increase production, will continue to support prices over the coming quarters. Next week, monthly oil market reports from the EIA on Tuesday and OPEC and IEA on Wednesday will be watched closely for clues about the current supply and demand situation.
U.S.-produced natural gas headed for its biggest weekly gain since 2020 and towards its highest weekly close since August 2008. Trading near $9/MMBtu, the price has now tripled compared with the 10-year seasonal average. According to Refinitiv, demand from U.S. LNG plants has since the start of March been averaging more than 12.3 billion cubic feet of gas (equivalent to 127 bcm), about 17% more than last year and almost as much as is consumed by the US residential sector.
In addition, the latest surge has been supported by expectations for hotter-than-usual weather over most of the South and Midwest while production continues to rise at only a modest pace. As a result, U.S. stockpiles are 16% below the five-year average, and the combination of strong demand for LNG cargoes from Europe and only a modest pickup in production is likely to see a slow inventory build over the coming months. In Europe, the Dutch TTF benchmark gas contract trades six times higher than its long-term average with continued concerns about Russian supplies keeping prices elevated.