The Commodities Feed: No surprises from OPEC+

The oil market came under further pressure yesterday, with ICE Brent falling by more than 3%. This follows a contraction in (real) US spending over May, while there were also revisions lower in 1Q22 spending data, highlighting that the consumer sector is perhaps not as resilient as thought. There is a very real risk that we see a further deterioration in spending over the second half of the year. So for oil, it is clear that macro developments are still the key driver for price direction at the moment. Fundamentally, the market is still tight, so we expect only limited downside in prices.

Yesterday’s OPEC+ meeting was a relatively boring affair. As expected the group confirmed an already agreed 648Mbbls/d supply increase for August. However, the next meeting, which is scheduled for 3 August could be more interesting, given that President Biden is set to visit the Middle East in July. He will likely put pressure on producers in the region to increase output more aggressively.

European gas prices have continued to strengthen this week. TTF is up more than 12% so far, settling a little over EUR144/MWh yesterday - the highest level seen since early March. The strength in the market continues to be due to reduced Russian flows via the Nord Stream pipeline. Daily flows along the pipeline are around 60% below the levels at the end of May. And these flows will come to a complete stop between 11-21 July, when the Nord Stream pipeline will undergo its usual annual maintenance. There are concerns that Gazprom may not resume flows once this maintenance is complete.

Industrial metals finished off the second quarter on a negative note, with all major metals settling in the red on the last trading day of 2Q22. LME copper closed at US$8,258/t, falling 20% QoQ and 15% year-to-date, primarily driven by poor macro sentiment, while LME aluminium slipped further yesterday, to close the quarter at US$2,446/tonne, falling 30% in the second quarter, and leaving it the worst performer amongst LME base metals. This pressure has come despite a number of metals struggling with supply tightness and exchange inventories hovering near critically low levels. Clearly, macro developments have been in the driving seat when it comes to metals.

The latest US acreage report from the USDA was fairly constructive for soybeans, as plantings fell short of expectations. The USDA estimates soybean acreage to be around 88.3m acres in 2022/23, which is significantly below the 91m acres of plantings estimated in its March report. The market was looking for a number closer to around 90.6m acres. Lower acreage is likely to weigh on production estimates when the agency releases its next monthly WASDE report on 12th July. The report was less constructive for corn. The USDA increased acreage estimates from 89.5m acres to 89.9m acres. While wheat acreage estimates were reduced from 47.4m acres to 47.1m acres, although still up YoY.

The USDA stocks report saw US soybean inventories at around 971m bushels as of 1 June, 26% higher than levels seen at this stage of the season last year. Corn inventories were also higher, standing at around 4.35b bushels as of 1 June compared to 4.11b bushels a year ago. As for wheat, US stocks stood at around 660m bushels as of 1 June, down from 845m bushels last year.