Whats the outlook for commodities?

Company News

by Glenn Dyer

Gold dominated, reaching a record of $US2,454 an ounce on Comex in May, closing the month, quarter, and half-year at $US2,336.98—an increase of 0.06% for the week, down 0.46% for June, but up 3.46% for the past three months and nearly 13% for the year to date by Friday.

Silver ended June and the half-year at $US29.435 an ounce, down 0.5% for the week and 3.6% for the month. However, like gold, it saw gains for the quarter (more than 17%) and the half-year (up 22.5%), as investors shifted focus from gold during its April and May highs.

Comex copper closed at $US4.3735 per pound after a volatile quarter. Copper hit highs of $US11,000 on the LME in London and $US5.19 per pound on Comex in mid-May. Despite dropping over 1% last week and more than 5% in the past month, it remained up 9% for the quarter and 12.45% for the year so far.

The major concern for copper enthusiasts remains the consistently high stocks in Shanghai and slightly lower but still notable inventories at the LME, coupled with an approximate overhang of 400,000 tonnes.

The standout story in commodities has been cocoa, skyrocketing nearly 85% due to shortages, marking its second-largest annual increase in history, though it has since retreated twice since May. It peaked at over $US12,216 a tonne on April 19, dropped to just under $US7,000 a tonne four weeks later, spiked again to $US10,372 a tonne a month after that, before ending June and the half-year at $US7,520 a tonne—a 10% drop for the month. With concerns easing about the West African crop, traders anticipate further price declines in the coming month.

Oil prices start the new month, quarter, and financial year on a downturn following a soft end to June. The outlook remains uncertain due to ongoing worries about Middle East tensions, alongside concerns over global demand amid potential economic slowdowns in the US, EU, Japan, and China, which could push growth closer to recession.

OPEC and OPEC+ face instability in their production policies, with some members, including Russia, reported to be exceeding production quotas. The International Energy Agency predicts a decline in demand over the next six months, while the rapid increase in US output appears to be slowing.

Brent closed June slightly down at $US84.97, a decrease of 0.06% for the week but a rise of 13% year-to-June and 10.24% year-to-date. US West Texas Intermediate crude ended June at $US81.54, up 16.8% for the year but down 1% for the week, with a 14% increase year-to-date.

However, the focus in the world’s largest producer continues to be on oil rig usage. Energy services group Baker Hughes reported on Friday that active US oil rigs fell by six to a 2-1/2 year low of 479 rigs in the week ending June 28, down from 485 the previous week. The number of US oil rigs has declined steadily from a four-year high of 627 in December 2022. Rig counts stood at 500 at the end of 2023 and 545 a year ago, indicating a significant decline over time. Total rig numbers fell from 674 a year ago to 581 by the latest count on Friday.

Gas rig numbers also decreased by one to 97, compared to 124 a year ago. The reduction in rig usage reflects efforts to enhance productivity, with US daily output now at 13.2 million barrels, one million barrels more per day than in June last year.

"From a relatively weak start to the year amid concerns about Chinese demand and the negative impact of high funding costs following the most aggressive rate-hiking campaign by the US Federal Reserve in decades, the crude oil market has since moved higher, with most of the major movements being driven by the ebb and flow of a geopolitical risk premium, and with that, the buying and selling from hedge funds looking for momentum," noted Saxo Bank Head of Commodity Strategy Ole Hansen in a Friday note.

Government data released Wednesday indicated that commercial crude stockpiles in the US rose by 3.6 million barrels to 460.7 million barrels by the week ending June 21, contrary to market expectations of a drawdown of 2.8 million barrels.

Despite this, crude prices continue to find underlying support from concerns about the Hamas-Israel conflict. Israel's military operations in Gaza persist, with apprehensions that the conflict might escalate to involve Hezbollah in Lebanon or even lead to direct confrontation with Iran.

Meanwhile, ongoing attacks by Iran-backed Houthi rebels on commercial shipping in the Red Sea have forced shippers to divert vessels around the southern tip of Africa instead of traversing the Red Sea, causing disruptions in global crude oil supplies.

Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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