Energy and industrial metals prices fall off their peaks

Posted 15 March, 2022

Oil, aluminum, copper, gas: energy and industrial metals prices fell on Monday and moved away from their recent peaks, in the wake of new talks between Ukraine and Russia and the confinement of Shenzhen, technological center Chinese.

The barrel of Brent from the North Sea for delivery in May closed sharply down 5.12%, at 106.90 dollars, while the American West Texas Intermediate (WTI), with maturity in April, fell by 5.78% to end at 103.01 dollars.

"Tangible progress was reported in the negotiations between Ukraine and Russia over the weekend," said Tamas Varga, an analyst for PVM Energy.

The prices of black gold are still up 36% since the start of the year, supported by the threat of break-in oil supplies from Russia.

The fourth round of talks between Ukraine and Russia, which began on Monday, will resume on Tuesday.

These discussions "cause optimism", says Walid Koudmani, an analyst at XTB, but the lull could be short-lived according to him because "any major event could trigger a new surge" in prices.

For Bill O'Grady, head of research at Confluence Investment Management, the correction is also due to the exit of speculative traders, who had bet low and had to buy oil to hedge against the surge at the start of the war.

"We came a little short of buyers" to maintain the rise, he said.

The sharp decline is also due, according to him, to the withdrawal of certain funds and investors burned by the extreme volatility of prices, which jumped 54% on Brent in ten days, before melting by 23% in one week.

In addition, Shenzhen, a technological center in southern China, was placed in confinement on Sunday after the report of epidemic outbreaks linked to the neighboring territory of Hong Kong, where COVID-19 is wreaking havoc.

A situation that has "contributed to lower the price of oil, demand may be affected by the decline in Chinese economic growth," said Susannah Streeter, an analyst for Hargreaves Lansdown.

 

Leaded metals

 

"There are growing concerns that other cities will follow suit to comply with the country's strict zero Covid policy," continued Susannah Streeter.

China is a major consumer of industrial metals. This confinement thus feeds “fears of a considerable weakening of demand in what is by far the largest market for metals”, affirms Barbara Lambrecht, an analyst at Commerzbank.

This is “the most worrying situation in connection with COVID-19 since the epidemic center of Wuhan”, she continues.

A tonne of aluminum traded on Monday at 3,330.50 dollars, almost 750 dollars less than a week ago, when the metal peaked at its all-time high, at 4,073.50 dollars per tonne. tonne.

The same observation for copper, which fell more than 8% on Monday from its historic peak at 10,845.00 dollars per tonne, reached seven days earlier.

The red metal is particularly linked to global growth, since it is used in electric cables, and therefore very sensitive to a potential slowdown in China.

Nickel trading, interrupted on Wednesday after nickel exceeded $100,000 a tonne for the first time in its history, had still not resumed on Monday at the LME, the London metal exchange.

 

The pressure falls on the gas

 

Natural gas prices were also in freefall on Monday, with deliveries of Russian gas to Europe continuing despite the dispute.

“Russian exports to Europe increased by 3% compared to last week”, “the highest levels since December 2021”, underlines Kaushal Ramesh, an analyst for Rystad Energy.

Russian gas giant Gazprom said its deliveries through Ukraine were "regular" and fulfilled its contractual obligations.

The prices of European natural gas have thus fallen by more than 66% in one week, compared to the historical peak at 345.00 euros per megawatt-hour (MWh). The benchmark for the European natural gas market, the Dutch TTF, was trading at 114.52 euros per MWh on Monday.

"The possibility of a complete breakdown in negotiations continues to represent a significant upside risk to oil and gas prices," said Ramesh, however.

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