The Commodities Feed: Oil stocks keep growing

It was another volatile day in the oil market, with ICE Brent trading down to below US$16/bbl at one stage yesterday, only to bounce back and settle above US$20/bbl. The move higher has continued in morning trading in Asia. Some of this strength came after President Trump said that he had instructed the US Navy to destroy any Iranian gunboats which harass US ships. This ratchets up tensions once again between the US and Iran. However, given the glut we have in the oil market, it is difficult to see this offering lasting support to the market, unless the situation does escalate further.

The oil market largely ignored the bearish EIA report yesterday, which showed that US crude oil inventories increased by 15.02MMbbls over the last week, which is the fourth consecutive week where US inventories have grown by more than 10MMbbls. This takes total US crude oil inventories to almost 519MMbbls, an increase of more than 63MMbbls since late March, and to levels last seen in early 2017. Meanwhile, crude oil inventories in Cushing increased by 4.8MMbbls over the week, taking total stocks at the WTI delivery hub to 59.7MMbbls. This compares to a working storage capacity of around 76MMbbls. Assuming similar increases moving forward, inventories in Cushing should reach capacity sometime during the first half of May, increasing the risk of further downward pressure on WTI prices.

Finally, refined product inventories also increased over the week, with gasoline and distillate stocks growing by 1.02MMbbls and 4.78MMbbls respectively. Refiners in the country continue to cut run rates on the back of poor demand. Run rates fell by a further 1.5 percentage points to 67.6% over the week.

Gold prices along with other precious metals traded higher yesterday. Safe-haven appeal amid extreme volatility in riskier assets has outweighed the pressure from a strong dollar. Investors continue to seek exposure via the ETF market; total gold holdings now stand at 95.1moz, an increase of more than 12moz since the start of the year. The latest data from the IMF show that Turkey expanded its gold reserves by 0.86mOz from a month earlier to a record 19.33moz in March. While, Russia marginally increased its gold reserves over the month, to stand at 73.92moz by the end of March. Russian purchases should slow in future, with the central bank saying that it would stop buying locally mined gold.

Copper bounced back yesterday, settling more than 2% higher on the day. Miner, Antofagasta, has said that it expects its copper output over 2020 to come in at the lower end of its production guidance of 725-755kt, as a result of the Covid-19 outbreak. This is despite, the producer’s 1Q20 output growing by 2.9% YoY. Meanwhile, developments in China remain constructive, with active physical trading leading to a drawdown in inventories, while a tight scrap market is favouring cathode demand. This is partially reflected in SHFE copper outperforming the LME market recently.

As for scrap, aluminium shares a similar story with copper in China. According to Antaike data, over the last month, 150-200kt of additional primary aluminium been needed to fill the void caused by lower scrap availability. The smelter curtailments that have so far been announced, coupled with this additional demand is offering support to the market. But there still remains a large surplus. In the LME market, a strong surge in reportable inventories has put huge pressure on nearby spreads. The cash/3m spread for aluminium slipped to the deepest contango since July 2015, trading to almost US$40/t this week.