Energy: Oil Risk Premium Rises
Oil prices surged in early trading today, with the ICE Brent front-month contract climbing above $80 per barrel. This rise comes amid escalating tensions in the Middle East following reports of the assassination of Hamas chief Ismail Haniyeh in Iran. Details are still emerging, but the market has increased the risk premium for oil. Additionally, a bullish inventory report from the American Petroleum Institute (API) has further supported the oil market.
The API reported that U.S. crude oil inventories fell by 4.5 million barrels, significantly exceeding market expectations of a 0.8 million barrel draw. Crude stockpiles at Cushing decreased by 929,000 barrels. There were also withdrawals in gasoline and distillate stocks, which fell by 1.92 million barrels and 322,000 barrels, respectively. The more closely watched Energy Information Administration (EIA) inventory report is due later today.
In another development, Nigeria’s government has agreed to sell crude oil to the Dangote Petroleum Refinery in Naira, aiming to ease pressure on the country’s foreign exchange reserves and stabilize domestic fuel prices. The decision mandates the sale of 445,000 barrels per day of crude assigned for domestic use. The refinery, once fully operational, will have a capacity of 650,000 barrels per day, sufficient to meet Nigeria’s entire petrol demand. The Nigerian Upstream Petroleum Regulatory Commission (NUPRC) requires major oil producers to sell crude to local refineries before considering export options.
Metals: Further Chinese Support Measures
At a recent Politburo meeting in China, officials pledged to introduce more measures to support the economy, focusing on boosting consumer spending. However, the meeting dampened market hopes for significant support for advanced industrial sectors, and the market awaits specific policy announcements. Signs of a stable manufacturing sector in China have supported the metals market, with prices of all industrial metals trading higher this morning.
In the precious metals market, gold edged higher for a second consecutive session, with prices trading well above $2,400 per ounce amid renewed Middle East tensions. Market participants remain optimistic about the upcoming Federal Reserve meeting, where officials might move closer to lowering interest rates.
The latest London Metal Exchange (LME) Commitment of Traders Report (COTR) indicates that investors reduced their net bullish positions in copper by 5,760 lots to 65,467 lots for the week ending July 26, the lowest since February 9, 2024. This marks the third consecutive week of declines due to a weakening demand outlook in China. Similarly, net bullish bets on aluminum decreased by 10,400 lots for four consecutive weeks to 99,494 lots, the lowest level since December 8, 2023. For zinc, money managers reduced net bullish bets by 6,686 lots for a third straight week to 20,908 lots as of last Friday.
Agriculture: India Sugar Production to Fall 2% YoY in 2024/25
The Indian Sugar Mills Association (ISMA) has projected that gross sugar production (including sugar diverted for ethanol production) in India will fall to approximately 33.3 million tonnes in 2024/25, compared to around 34 million tonnes in 2023/24. The total acreage under sugarcane is expected to be about 5.61 million hectares in 2024/25. Despite the reduction in production, sugar allocation for ethanol production will remain unaffected as the country anticipates sufficient sugar supplies for the next season. Sugar consumption is expected to average around 29 million tonnes, while opening sugar stocks in India at the start of 2024/25 are projected at 9.1 million tonnes.
Weekly data from the European Commission shows that the EU’s soft-wheat exports for the 2024/25 season stood at 1.9 million tonnes as of July 28, down 38% compared to 3 million tonnes a year ago. The decline in exports is primarily attributed to the impact of rain and storms on France’s crop harvest. Major destinations for these shipments included Nigeria, Morocco, and Egypt. In contrast, the bloc’s corn imports stood at 1.74 million tonnes, up 31% year-on-year.
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