commodity market: what to watch as commodity markets brace for supply issues

Supply issues in commodity markets will return to the fore in September, after prices fell slightly last month as central banks stepped up the fight against inflation.

For the energy sector, a crucial OPEC+ meeting earlier this week could decide the near-term fate of oil prices, as the global gas industry gathers in Milan to weigh the enormous pressures caused by the Russian invasion of Ukraine and soaring fuel prices.

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 completed three straight monthly losses this week, 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 monetary policy in the United States. The plunge prompted hedge fund star Pierre Andurand to call the crude futures market “broken”. To gauge whether the selloff should go further, traders will look to the latest monthly meeting of the OPEC+ alliance, which meets via videoconference on Monday.

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Coalition leader Saudi Arabia has signaled it is ready to cut output – which would reverse the recent upward trend – to bring markets back into balance. It received enthusiastic support from the rest of the Organization of the Petroleum Exporting Countries. But with inflation still ravaging the global economy and EU sanctions on Russia set to inflict a winter energy crisis, Riyadh may be reluctant to risk souring relations with the White House and may choose instead to maintain stable production.

California heating

California remains in the grip of scorching heat. September started out warm in the western United States and chances are it will last at least two weeks. Most of the Golden State headed into the US holiday weekend in the face of excessive heat warnings, and temperatures could soar as high as 110 degrees Fahrenheit (43 degrees Celsius) in some areas.

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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 California grid operator expects power demand to top 47 gigawatts on Monday and hit 49 gigawatts on Tuesday, which would be the highest since 2017. The all-time high is nearly 50.3 GW hit in 2006 One gigawatt is enough to power 750,000 California homes.

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.

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

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 set 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 ramping 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.

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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 other major wheat producer in the southern hemisphere. 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.

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This week’s purchasing managers’ indices suggest grounds for optimism that conditions have at least bottomed out. Steel’s August reading showed the industry still contracting, but the pace of the decline has narrowed sharply and, lockdowns permitting, China is now heading into one of its periods of decline. 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.

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