The Commodities Feed: Record gold buying from central banks

The oil market had a strong day yesterday with ICE Brent settling almost 2% higher after unverified reports that China could look to ease its zero-Covid policy. However, for now, this is nothing more than a rumour. China’s covid policy has weighed heavily on oil demand this year with crude oil imports over the first nine months of 2022 averaging 9.95MMbbls/d, down 4.4% YoY.

Numbers from the API overnight have provided some further support to the market in early morning trading in Asia. US crude oil inventories are reported to have fallen by 6.53MMbbls over the last week. This is significantly more than the roughly 200Mbbls draw the market was expecting. For refined products, distillate fuel oil stocks increased by 865Mbbls, while gasoline stocks fell by 2.64MMbbls, which would have boosted sentiment further. Overall, it was a bullish set of numbers. However, we will need to see what the more widely followed EIA numbers show later today.

Preliminary numbers from Bloomberg show that OPEC oil production in October increased by 30Mbbls/d to average 29.98MMbbls/d. The largest increases came from the UAE, Nigeria and Iraq, whose output increased 70Mbbls/d, 50Mbbls/d and 50Mbbls/d respectively. While Angola, Congo and Libya saw the largest declines with output falling by 60Mbbls/d, 40Mbbls/d and 30Mbbls/d respectively. Production target levels for the broader OPEC+ group were lowered by 100Mbbls/d for October. However, given that most producers are still producing well below their target production levels, the group is still well ahead in terms of compliance levels.

Base metals rallied yesterday on speculation that Beijing will prepare to wind down China’s Covid-19 rules. Chinese stocks and the yuan also rallied. An unverified social media post circulating online suggested that a committee is being formed to assess scenarios on how to exit its current Covid zero policy.

Three aluminium smelters in China’s Henan province plan to halt 110kt of combined annual capacity on losses and to curb pollution during the winter heating season, according to a report from the Shanghai Metals Market. The plants plan to halt 10-15% of their total capacity by the middle of this month with the restart time unknown for now.

In precious metals, gold prices rose as the dollar fell ahead of a Federal Reserve meeting. Gold has been struggling to find direction in recent weeks, trading around $1,650/oz, as investors wait for the Fed’s decision, with market expectations firmly behind a fourth consecutive 75bp interest rate hike.

The latest data from the World Gold Council shows that central banks increased their buying of gold significantly over the third quarter. Central banks bought 399 tonnes in 3Q22, which is up 341% YoY and also a record quarterly amount. The data shows that Turkey, Uzbekistan, India and Qatar were the largest buyers of gold over the quarter. Those who report their numbers were net buyers of almost 90 tonnes, which leaves a significant amount of purchases from unknown buyers.