Energy – European talks on the energy crisis today
Yesterday, the oil market managed to recover some of its declines from the beginning of the week. ICE Brent continues to trade below US$90 a barrel and the market will be watching for any signs from OPEC+ of possible intervention.
The partial market recovery comes despite fairly bearish EIA numbers. The EIA reported that commercial inventories of crude oil in the United States rose by 8.85 million barrels over the past week – the largest increase seen since April. When you factor in the SPR release, total US crude oil inventories rose to a more modest 1.32 million barrels. An increase in crude imports, a drop in exports and lower refinery utilization (due to the BP Whiting outage) during the week all contributed to the rise in crude. Despite the decline in refinery activity, inventories of gasoline and distillate fuel oil increased by 333 Mb and 95 Mb respectively.
Gas prices in Europe continue to trade in a volatile fashion, with the TTF dropping below 200 EUR/MWh at one point yesterday, to end the day above 220 EUR/MWh. The market will be sensitive to today’s developments as EU ministers meet to review proposals to tackle the energy crisis. These proposals include various forms of price caps, as well as potentially mandatory demand reductions not only for gas but also for the electricity market. Liquidity measures for European power companies will also be high on the priority list. As mentioned before, while price caps offer some relief to consumers, they do not help the market try to balance itself out by destroying demand.
Metals – Escondida Strike Drives Up Copper Prices
Copper prices on the LME ended the day higher amid reports of potential mining strikes in Chile. Workers at BHP’s Escondida, the world’s largest copper mine, have voted for a partial strike starting next week over safety concerns, according to the mine’s union. The strike will result in a partial shutdown on September 12 and 14 and will be followed by an indefinite strike until an agreement with BHP is reached.
The spread action also suggests a quick copper market tightening. The LME copper cash/3m backwardation reached 145 USD/t (highest since November) yesterday, against a backwardation of 76 USD/t the day before and a contango of 7.75 USD/t at the start of 2H22.
Vale SA raised its nickel production forecast to 230-245 kt per year in the medium term, higher than its previous forecast of 200-220 kt in May, the battery metal producer said. In the long term, Vale expects annual nickel production to reach over 300 kt to meet growing demand for this metal.
In ferrous metals, the most active SGX iron ore contract rose above US$100/t yesterday on hopes of a pickup in construction activity in China. According to the latest market reports, the Chinese city of Zhengzhou will resume all stalled housing projects by October 6, using special loans, asking developers to return embezzled funds and encouraging some real estate companies to deposit the balance sheet, according to Reuters. reports.