On copper supply, it is worth mentioning that copper slumped 8% in a week that saw production in Chile, the world’s top producer, drop for a second month with mines struggling with falling ore-grades meaning mines need to move more rock to produce the same amount. In addition, water restrictions have presented further headwinds for producers. Developments that could see copper and with that silver recover strongly once developments in China improves.
Gold’s ability to act as a diversifier has increasingly been called into question with the latest decline to near the key support area of around $1680/oz.
Once again, however, it is worth highlighting that gold – except for XAUUSD which has been troubled by the mentioned 11%-dollar rally – continues to do a great deal better than under pressure stocks and bonds. The yellow metal has so far once again managed to find support around $1680, an area that has provided support on several occasions during the past two years. A break to the downside would sour sentiment further and may challenge investors with a long-term positive view on the metal. At this stage the price needs to break above the trendline from the March peak, currently at $1770, before signalling a recovery.
Crude oil rangebound, but volatileCrude oil’s bounce from a six-month low became unstuck following Jerome Powell, the Federal Reserve Chairman’s hawkish message. Together with renewed lockdowns in China, it once again triggered a reversal in the market focus away from tight supply and back to worries about demand. What followed was a near 12-dollar correction to near $90 in Brent and $85 in WTI with some of the selling being driven by speculators having bought the break above $100 following Saudi comments that OPEC+ could consider a production cut.
In Europe and increasingly also Asia, elevated prices for gas and power continues to attract substitution demand into fuel products like diesel and heating oil. In the short-term, the price of gas into the autumn months will continue to be dictated by Russian flows, and not least whether Gazprom (and Putin) will resume flows on the Nord Stream 1 pipeline as announced, following the three-day maintenance shutdown that ends at 0100 GMT on September 3.
On the supply side, the market will be watching the impact of the EU embargo on Russian oil, which will begin impacting supply from December and the 180-million-barrel release, at a rate of one million barrel per day from US Strategic Reserves that look set to end on October 21. Finally, an Iran nuclear deal has yet to be reached, and after the US called Iran’s response to the latest effort to revive the 2015 nuclear as “not constructive”, the risk of failure remains. Following a 25% drop in US retail gasoline prices since June and the Democrats not wanting to be seen as going soft on Iran, a deal looks increasingly unlikely, at least in the short term.
With OPEC+ meeting to talk output on September 12 the price of oil is unlikely to fall further with support at $85.50 in WTI and $91.50 in Brent unlikely to be challenged soon.