LIFTING LOCKDOWNS GIVE COMMODITIES CHANCE TO RECOVER

Oil prices have stabilised in recent weeks as a number of exporters took measures to support the commodity.

In June, the Organization of the Petroleum Exporting Countries (OPEC) and its allies met via videoconference under the chairmanship of Abdul Aziz Bin Salman, Saudi Arabia’s minister of energy, and co-chair Alexander Novak, minister of energy of the Russian Federation, to continue their commitment to support the sector.

“The meeting noted additional adjustments from Saudi Arabia (1 million barrels per day); the UAE (100,000 bpd); Kuwait (80,000 bpd) and Oman (10,000 to 15,000 bpd) in June; the announcements of voluntary adjustments from several countries, such as Norway and Canada; as well as various oil company statements revising downward production plans and shutting in supply,” the joint statement noted.

Prices are also stabilising as economies reopen and businesses restart operations after being in lockdown due to the pandemic. In early June, both the US Western Texas Intermediate and global Brent benchmarks traded close to USD 40 per barrel for several days before easing back slightly.

In China, strong commodity imports in May appear to be driven by real demand improvement, due to the credit impulse and other easing measures, and stock builds. Real demand improvements could continue in the following months on a seasonal-adjusted basis.

In June, the International Energy Agency revised up its estimated demand by 400,000 bpd in the first quarter and 2.1 million bpd in the second quarter, compared to its forecast from the previous month.

The most noteworthy changes were seen in China (up 180,000 bpd in the first quarter and 790,000 bpd in the second quarter), where oil demand recovered fast in March and April and could overtake last year’s level in the third quarter. India’s demand also increased sharply in May versus April. The IEA said it also upgraded its oil demand figure for several OECD economies (Canada, France, Germany, Korea and the Netherlands) due to improving mobility data.

“Recent data show a strong improvement in southern Europe (France, Italy and Spain), where lockdowns have been more severe than in northern Europe (Germany, Norway and Sweden). Northern Europe is almost back to normal activity levels,” the IEA said in its June report.

Meanwhile, global production is falling, which should support prices. The IEA expects global supply to contract 7.2 million bpd on average this year, and only increase 1.8 million bpd next year.

“The recent improvement in oil prices that saw WTI trading for a few days close to USD 40 per barrel is not enough to allow a significant increase in US output, which in June is estimated to have fallen to 10.5 million bpd, down by 2.4 million bpd from a record high seen in November,” the IEA noted.

The S&P GSCI Commodity Index has slumped nearly 38% year to date, primarily on the back of lower crude oil and natural gas prices, but also declines in base metals due to lower economic growth.

However, S&P GSCI surged 16.4% in May, its best monthly performance in 11 years.

“The broad commodity index’s more than 50% exposure to energy was a key contributor to its performance. Energy led the way, with the WTI-based S&P GSCI Crude Oil up 55.0%, bouncing impressively off the lows in April. Despite economic data points, like US consumer spending dropping the most on record, commodities posted an overall strong month,” said S&P Global Ratings in its monthly report on the commodities. “Industrial and precious metals exhibited positive gains, while agriculture and livestock were mixed.”

As global economic prospects remain uncertain, gold prices continue to rise and are up 14% to around USD 1,734.90 per ounce by mid-June.

Amid this backdrop, the Saudi Arabian Mining Co., or Ma’aden, increased its gold production to 113,000 ounces, up 45% in the first quarter, compared to the same period last year. The company reported its year-on-year gold sales rose 80% to SAR 685 million. The company’s realised gold prices rose USD 280 per ounce, driven by market prices.

Aluminium, another key Ma’aden commodity, has also seen a slight increase in prices in recent months. However, the first quarter was impacted by lockdowns in many downstream aluminium industries, while demand dropped sharply.

Ma’aden’s aluminium sales reached SAR 1.76 billion in the first quarter of 2020, a slight 1% decline over the same period last year. The company believes aluminium demand and prices “might rebound in 2H2020.”