What to watch as commodity markets brace for supply hits


Supply issues are expected to dominate commodity trading in the coming days, with the shortage of natural gas in Europe and an OPEC+ decision on further oil flows.

The prolonged closure of a key gas route from Russia threatens to worsen turbulence in global gas and electricity markets and creates serious problems for the European economy. Leaders in the region will consider extraordinary measures in response. The OPEC+ rally later on Monday comes after Saudi Arabia signaled the possibility of crude supply cuts.

The extreme weather watch for the agriculture and power markets is shifting to Atlantic hurricane season and California, where soaring temperatures threaten wildfires and a distorted grid. Australia, one of the world’s top grain exporters, will update its harvest forecast on Tuesday.

In China, which is just recovering from its own historic drought, Wednesday’s trade figures will provide a balance sheet of the health of its commodity imports. The data will be released against a grim backdrop of power shortages, a slumped property market and the government’s strict Covid Zero rulebook, which has now been launched in metropolitan Chengdu.

Raw cuts

Oil prices soared to start the week as traders braced for an OPEC+ meeting held against a very fluid backdrop for the global market. Crude just suffered three straight monthly losses, its longest slide in more than two years, and fell below $100 a barrel on fears of slowing economic growth in China and a tightening of oil prices. monetary policy in the United States.

Coalition leader Saudi Arabia has signaled it is ready to cut output – reversing the recent upward trend – to bring markets back into balance. The move had enthusiastic support from some cartel members, but with inflation still ravaging the global economy and Europe’s outlook darkening, Riyadh may be reluctant to risk souring relations with the White House and may choose to keep production stable instead.

California heating

“This multi-day event is going to get much more intense,” said Grid CEO Elliot Mainzer. California remains in the grip of scorching heat. September started off hot in the western United States and chances are it will last until the middle of the month. The state power grid operator warned on Sunday that the risk of outages was at its highest level yet.

The heat wave is exacerbating drought conditions, taxing agriculture and increasing the risk of wildfires, while prompting Californians to increase air conditioning and stress the state’s power grid. The grid operator said it expects electricity demand on Tuesday to rise to nearly 50.1 gigawatts, just below the record set in 2006. One gigawatt is enough to power 750,000 homes Californians.

Software supply

Coffee, sugar and cotton traders are closely monitoring weather forecasts in the Gulf of Mexico as the Atlantic hurricane season peaks. The first hurricane of the season, which formed west of the Azores, was named Danielle, but its winding mid-Atlantic track poses no threat to the region.

Severe storms can threaten sugar cane in Florida and Louisiana, America’s top producers, and citrus crops in Florida, the nation’s largest supplier of juice fruits.

Cotton crops in southern states are also vulnerable to extremes. The drought has already affected Texas, the largest U.S. producer, cutting global supplies and contributing to a 17% rise in cotton futures prices in August, the biggest monthly jump since late 2010. in American cotton are even bigger now after catastrophic floods ruined much of the crop in Pakistan, the fifth-largest producer.

Severe storms can also damage coffee crops and infrastructure in Central America, where some regions are still recovering from hurricane damage two years ago.

Wheat Optimism

Better news could be expected from Australia, where the government is expected to release a quarterly update detailing what it thinks the size of the next wheat crop could look like. Wet conditions across the country this year have given many growers cause for optimism. After stepping up plantings, farmers are expected to achieve another bumper harvest, and the report should see an upward revision to an already fairly buoyant production forecast.

The prospect of more supplies should offer some relief to a world facing uncertain grain supplies. Extreme weather conditions have reduced production in parts of Europe, and there are crop concerns in Argentina – the southern hemisphere’s other major wheat producer. As La Nina saps soil moisture, farmers have abandoned seedlings due to drought. The drought is also reducing crops from the US agricultural belt to China. And even if shipments start again from Ukraine, there are fears for the next harvest, because part of the agricultural land was lost during the war.

Chinese metals

China’s import data for August should help form an opinion on the direction of metal prices. While the government’s intention to spend more on infrastructure will help revive the consumption of materials used in construction, there are doubts whether this will be enough to fully offset the impact of virus-related curbs on the economy. economic activity and a faltering real estate sector.

Last week’s purchasing managers’ indices suggest grounds for optimism that conditions have at least bottomed out. Steel’s August reading showed the industry continuing to contract, but the pace of the decline has narrowed sharply and, lockdowns permitting, China is now heading into one of its periods. peak for construction activity. Traders will be looking at trade data to see if this has translated into increased overseas demand for items like iron ore and copper.

© 2022 Bloomberg


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