Crude oil prices slipped as the market looked for new direction following this week’s OPEC-led rally. A new stimulus package in the US remains elusive as virus numbers rise out of control following Thanksgiving. Job growth has subsequently fallen sharply. For the moment, the market is happy to look past these issues as the vaccine rollout beings; however, the economic headwinds are building in the short term. The market is still underpinned by strong demand in Asia. China’s imports of crude oil for November rose by 6.6% m/m to 6.57mt. This was against a broad improvement in China’s overall trade data; which showed strong growth in exports. The strength in Asian markets led Saudi Arabia to raise its oil pricing to the region, suggesting the kingdom is confident consumption is strong enough to absorb the small increase in output that OPEC agreed to last week.

 

The rally in North Asia LNG prices shows no sign of slowing, with risk of further supply disruptions. Chevron shut a section of its Wheatstone LNG export facility after a routine maintenance check. While all trains are operational, it was forced to cancel several cargoes. This follows a weak November, where Australia’s total LNG production fell 6.5% y/y in Q3. Most of the fall was driven by the shutdown of a production train at the Gorgon facility. Nevertheless, demand has also been strong. China’s imports of LNG rose 22% m/m to 9.18mt in November. This saw prices push higher, with January contract extending recent gains, rising 1.4% to USD7.600/mmbtu. However, all the interest remains in the February contract, which rose 5.4% to USD7.615/mmbtu.

 

Copper gave back some of its recent gains, as rising geopolitics tension prompted investors to book some profits. US was preparing to sanction at least a dozen Chinese officials for their recent disqualification of Hong Kong legislators. A Brexit deal also threaten to collapse. The metal has been on a tear in recent weeks as investors pile into base metals seeking exposure to the new energy sectors, which are expected to boost demand of high valued metals. Demand is already rising as the Chinese economy recovers sharply from the pandemic. The strong trade data release yesterday was driven by electrical equipment and products, which account for 59% of China’s total exports. They surged 25% y/y in November, contributing 14.5ppt to total export growth. Copper imports were also strong, rising 16.2% y/y to 546kt.

 

The strong economic data boosted sentiment even further in the iron ore market. This market is also on a tear, up 30% over the past month to hit a six-and-a-half-year high of USD145/t. Imports into China highlight the strength of demand, with November volumes up 8.3% to 98.2mt. This brings this year’s total to over 1bn tonnes. The market has also been supported by constrains in supply, with Vale announcing recently it would fail to meet recent targets.

 

Despite no announcement by US lawmakers on a stimulus package, gold prices rallied amid hopes they are getting closer to a deal. Further support was provided by a weaker USD, while rising geopolitical tension helped boost safe haven buying.

 

By Daniel Hynes | Senior Commodity Strategist