Oil Supply Risks: Middle East Tensions & Market Outlook
With the Middle East seemingly calmer, the commodities markets, including the oil supply, are shifting focus. This is happening as the U.S. and China finalize a trade agreement, which boosts market sentiment. OPEC+ will decide on August production levels on July 6, influencing future oil availability. Despite easing Middle East tensions, the ICE gasoil crack remains supported, and European natural gas prices continue to decline. Copper spreads are spiking on the LME due to plummeting stockpiles and potential U.S. tariffs.Ghana’s cocoa crop estimates have been reduced due to weather. News Directory 3 provides essential insights into these shifting dynamics. Discover what’s next as these factors reshape global markets.
Commodities Markets: Tariffs Take centre Stage Amid Middle East Calm
With a ceasefire between Iran and Israel seemingly holding,the commodities markets’ attention is pivoting toward tariffs and trade agreements. The energy sector, in particular, is closely watching developments after weeks of volatility stemming from Middle East tensions.
U.S. Commerce Secretary Howard Lutnick said the U.S. and China have nearly finalized a trade agreement crafted last month in Geneva. Lutnick anticipates similar agreements with 10 major trading partners soon. This news is viewed as constructive, especially with the July 9 reciprocal tariff deadline approaching.
OPEC+ will decide on August production levels on July 6. Expectations are that the group will continue unwinding supply cuts,potentially announcing another 411,000 barrels per day increase for August. Such increases coudl lead to a critically important oil market surplus by year’s end, assuming no renewed escalation in the Middle East disrupts supply.
Despite easing tensions,the ICE gasoil crack remains supported. Data from Insights Global indicates that refined product inventories in the amsterdam-Rotterdam-Antwerp (ARA) region of europe decreased by 208,000 tons week-over-week to 5.51 million tons. This decline was largely due to middle distillates, with gasoil stocks falling by 211,000 tons to 1.85 million tons and jet fuel inventories dropping by 39,000 tons to 870,000 tons.
European natural gas prices continue to decline, with the Title Transfer Facility (TTF) falling 3.89% and hitting a seven-week low. Reduced middle East tensions may alleviate concerns about LNG supply disruptions. EU storage levels are at 57% full, compared to 76% last year, similar to 2022 levels. The market remains balanced, limiting further price declines in the short to medium term.
Copper Market Reacts to Tariff Talk
Copper spreads spiked on the London Metal Exchange (LME) on Thursday, with cash contracts trading at a premium of over $319 per ton to three-month futures, down from a high of $379 per ton earlier in the week. The LME’s tom/next spread surged to $98 per ton, a record high.
Tightness in copper spreads is attributed to plummeting LME stockpiles, now at their lowest since August 2023. An investigation into potential U.S. import tariffs on copper has led to an 80% decrease in LME on-warrant holdings this year. The rush to import copper into the U.S. before tariffs are implemented has tightened markets elsewhere. Comex copper futures continue to trade at a premium to the LME and the Shanghai Futures Exchange (SHFE),incentivizing shipments to the U.S.
LME copper prices also surged, nearing $9,900 per ton. Prices are expected to remain supported if LME stock withdrawals continue. However, implementing U.S. tariffs on copper could be bearish, potentially halting the flow of copper to the U.S. and allowing consumers to deplete inventories, improving copper availability outside the U.S. and weighing on prices.
Ghana’s Cocoa Crop Estimates Reduced
The Ghana Cocoa Board now projects cocoa production to fall to around 600,000 tons in the 2024-25 season,down from a previous forecast of 618,000 tons and significantly below the initial forecast of 810,000 tons. Adverse weather and swollen shoot disease have impacted the crop. however, output is still expected to be 36% higher year-on-year.
What’s next
Commodities markets will be closely watching the OPEC+ decision on August production levels on July 6, and also any further developments regarding trade agreements between the U.S. and its major trading partners.The potential implementation of U.S. tariffs on copper remains a key factor for the metals market.