The Commodities Feed: Oil demand growth revisions

IEA oil demand: The International Energy Agency released its monthly oil market report on Friday, and given the growing concerns over demand growth, it was no surprise to see that the agency revised lower their demand growth forecasts for 2019 and 2020 by 100Mbbls/d and 50Mbbls/d, to 1.1MMbbls/d and 1.3MMbbls/d respectively. According to the IEA, global oil demand fell by 160Mbbls/d YoY in May, and cumulative demand growth over the first five months of this year was just 520Mbbls/d.

Meanwhile looking at supply, OPEC continues to tighten the market, with the Saudis are cutting more than their agreed quota. These OPEC cuts should see stocks fall for the remainder of this year. However, for 2020, the IEA is forecasting that non-OPEC supply will grow by 2.2MMbbls/d, which should keep the market well supplied over the course of next year.

We are of the view that strong non-OPEC supply growth next year, will mean that OPEC will likely have to take further action next year or face the risk of lower oil prices.

Speculative positioning in oil: Latest data shows that speculators decreased their net long in ICE Brent by 12,840 lots over the last reporting week, leaving them with a net long of 263,500 lots as of last Tuesday. The bulk of this reduction was driven by longs liquidating, with the gross long falling by 8,449 lots over the week. Meanwhile, CFTC data shows that speculators increased their net long in NYMEX WTI by 9,074 lots over the last reporting week, leaving them with a net long of 177,189 lots as of last Tuesday.

Lead smelter outage: Nyrstar has halted operations at its Port Pirie lead smelter in Australia once again and declared force majeure on supply contracts due to an unplanned outage at the main furnace. This is the second closure at the plant in over three months, after the company had to shut operations for two months in June/July due to a similar incident, which resulted in a production loss of around 30kt. ILZSG data shows that the global lead market reported a deficit of 42kt over the first five months of 2019; the smelter outage is likely to have tightened the market even further.

Speculative positioning: Speculators have been herding into precious metals as geopolitical and trade uncertainty continue to boil over. CFTC data shows that money managers’ net long in gold increased by 53,717 lots over the last week, with them holding a net long position of 285,082 lots as on 6 August. Gross longs increased by 47,399 lots, while gross shorts declined by 6,318 lots. The current speculative net long in COMEX gold is at a three-year high and stands only marginally away from the record high of 286,921 lots made in July 2016. On the other hand, speculators increased their net short in COMEX copper by 34,225 lots over the week, leaving them with a record-high net short position of 74,597 lots as of 6 August, with demand concerns continuing to weigh on sentiment.

Brazil data: Data from UNICA shows that sugar production in the Center-South region of the country dropped 5.5% YoY to 2.48mt in the second half of July. Total cane crushed increased by 4.25% YoY to 49.7mt; however, a larger part of the crop was allocated to ethanol production due to better margins. Sugar’s share in cane processing fell from 38.4% last year to 37% this year. Among other crop data, CeCafe reports that green coffee exports from Brazil increased 33% YoY to 2.8m bags in July, with Arabica exports rising by 28.6% YoY to 2.26m bags and Robusta shipments up by 56% YoY to 0.58m bags.