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Next Week Forecasts

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Important weekly events (Short Recollection)

Friday was a day when Oil futures came to a four week’s high. The prices scored a weekly rise of more than 5%. And most noteworthy the optimism on upcoming production cuts rose the positive expectations and market movement. The cuts will be extended to next 9 months. Starting from June 2017 and entering the March of 2018.

U.S. West Texas Intermediate crude leveled up for 98 cents. Counted in percentage that is around 2%. It reached a price of $50.33 at Friday’s close. Observing the period of last 4 weeks, this was the highest price.

Later, the U.S. benchmark rose for $2.49. Which makes it about 5% up weekly.

Meanwhile, ICE Futures Exchange in London saw the price of Brent Oil at $53.61 a barrel by the close. The daily peak was even higher, at %53.82. Which was the unseen level since April 19th.

London-traded Brent futures gained $2.77 on their price. If calculated in percentage, it is the exact 5.2% for the week.

The production cuts will be extended to the next 9 months. Rather than the 6 previously agreed. There are signs of their possible deepening, but it is still not sure. We will definitely know on Thursday.

The fuel rose for 6% on weekly basis. June heating oil also finished at $1.582 a gallon, which makes it 3.7 cents up for a unit.

 

The upcoming Week

The economic events taking place in the week ahead will be very significant for global economy. Traders will all focus on OPEC highly-anticipated meeting. Where the major producing countries will decide on extending the production cuts.

 

Chronology of daily economic events which will impact the market next week:

  1. OPEC Meeting

2.Fed FOMC Meeting Minutes

3.U.S. Revised 1st Quarter Growth Data

  1. U.K. First Quarter GDP – Second Estimate

5.Flash Euro Zone PMIs for May

 

Upcoming week in Numbers & Data

Also worth mentioning, The American Petroleum Institute is going to publish its weekly report on U.S. oil supplies on May 23rd.

On Wednesday, May the 24th, EIA will release the weekly report on data about Oil and Gas.

Later, Thursday meeting is definitely the most important event of the week. The upcoming FINAL decision of OPEC and non-OPEC oil producing countries, about prolonging the outputs. Taking place in Vienna.

Finishing with Friday the 26th, when Baker Hughes will show some weekly reports on U.S. shale drilling, and numbers which put up close the U.S. oil production.

Focus is set directly on Oil prices, and long-term Oil market stability, as an aim for global participants.

In conclusion, the upcoming week will be a bit tense, certainly agitated, interesting to observe, inspiring to comment on. And for sure challenging for all the main market participants. And all the traders and investors who hold their stakes in the market and are waiting for the concrete outcomes.

 

 

 

 

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IRON ore in China: Imports ease in April amid gloomy glance

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Reasons

China’s April iron ore down, due to vessel-tracking and port data suggesting a decline of several million tonnes from the near-record levels recorded in March.

83.27 million tonnes of the iron ore was dismissed at Chinese ports in April. Down 3.7 percent from March’s 86.46 million.

The vessel-tracking and port data often show numbers below the official Chinese customs data. Who reported 95.56 million tonnes of iron ore imports in March. That would be the second-highest on record. The ship data does point to lower imports in April. About 3 million tonnes.

 

China’s largest suppliers

It seems that much of the decline in iron ore imports was borne by Australia. Being China’s number one supplier, with the data showing imports of 53.9 million tonnes in April. Down from 58.9 million in March.

 

Rather, second largest supplier Brazil saw Chinese imports of 18.48 million tonnes in April. UP from March’s 16.54 million.

The lower imports from Australia in April are the result of earlier weather-related disruptions. There was rainy period in Western Australia state that affected both mines and rail networks.

This means imports from Australia are likely to recover again in May, which may be a bearish signal for prices if miners such as Rio Tinto, BHP Billiton and Fortescue Metals Group decide to chase volumes over prices.

 

Forecasts & Opinions

This can already partly be seen by the 11 percent jump in iron ore shipments from Port Hedland, the terminal used by BHP and Fortescue, to 34.86 million tonnes in April from 31.5 million in March. Sailing time lasts of around two weeks between northwest Australia and China.

Ultimately iron ore prices are driven by steel prices and margins, and here the outlook is less certain, with the main Shanghai rebar contract trending lower in recent weeks. Because the resilience of China’s infrastructure and construction spending.

 

Chinese steel

While Chinese steel output has remained robust so far this year, the market seems to be rolling toward the opinion that margins will be under pressure. Specially in the second half of the year as domestic demand growth slows and exports struggle.

Already Chinese steel mills are seeing lower exports, with shipments of products sent overseas slumping 25 percent to 20.72 million tonnes in the first quarter of this year compared to the same period last year.

Exports are the key factor for the 800 million tonnes-a-year Chinese steel sector. And a significant downturn is another important factor for the industry.

 

Iron ore prices

Spot Asian iron ore prices have performed worse than Chinese steel rebar futures in recent weeks. Dropping 28 percent from a peak of $94.86 a tonne on Feb. 21 to $68.68 on Wednesday(May 3rd).

The sharp decline is partly due to the strong rally over the past 13 months, which saw prices almost triple. Sending iron ore to levels that appeared well overbought. Given the market remains well supplied and will have to absorb more than 100 million tonnes of new low-cost production from Australia and Brazil this and next year.

While China buys about two-thirds of seaborne iron ore, this still leaves one-third that can influence the market. Recent news are pretty positive for the major exporters.

  • Japan’s imports of iron ore in April reached the highest since vessel-tracking data started in January 2015. With 11.62 million tonnes discharged during the month, up from 10.45 million the prior month.  Asia’s third-largest importer, South Korea, saw 7.17 million tonnes offloaded in April, the most since October 2015, according to the data. (Reuters)

April’s fall in China’s iron ore imports is related to earlier weather issues in Australia. Considering the info that shipments have already recovered, there is unlikely to be any supply tightness.

So the price is exposed to Chinese demand, and then the outlook is less certain and will depend on how much spending stimulus the authorities in Beijing consider suitable.

 

 

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Citigroup Inc. joined Goldman Sachs Inc. believing in better second quarter of 2017

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“It’s time to have faith in raw materials, and oil will probably recover to the mid-$60s by the end of the year.” Citigroup Inc. who joined Goldman Sachs Group Inc. said.

Even if U.S. shale output may come “booming back” midst of higher crude prices, production control by OPEC and its leaguers should help neutralize that increase over the next six to nine months.

The producers need to widen their deal to cut supplies by the end of the year.

Goldman Sachs has also made similar comments, saying extensive inventories that have undermined the output cuts are set to shrink and calling for more patience from the market.

 

Bank sees commodity investment flows rising in second quarter

 

“With a continuation of the OPEC and non-OPEC producer deal in the second half of 2017 and the expected combined inventory draw-down, we expect oil prices to move above $60 a barrel by the second half of the year.” (Market analysts wrote.)

Still, bigger supplies from producers in the fourth quarter of 2016 at this moment seem “a dark cloud hanging over the market.” And also a failure to extend the output agreement which would send prices “precipitously lower.”

 

The bank expects U.S. West Texas Intermediate oil to average $62 a barrel. Global benchmark Brent crude is expected to average $65 a barrel in the fourth quarter. WTI was trading 30 cents lower at $52.35 a barrel on the New York Mercantile Exchange at 10:34 a.m. London time on Tuesday. Brent on the ICE Futures Europe exchange was down 35 cents at $55.01 a barrel. (Bloomberg)

The production-cut agreement urged a change in market structure. That change meant traders had less incentive to store oil at sea prompting the flow of supplies floating on ships to onshore sites. That set the stage for boosting U.S. inventories to a record in the first quarter of 2017.

This gain and agitated output by the OPEC in the fourth quarter had an effect that would “ultimately hinder and reverse the very rebalancing they were trying to accelerate,” the analysts said. The bank expects U.S. liquids output to grow y-o-y at 1 million barrels per day or more by December.

U.S. Crude Oil Inventory, Source: Bloomberg

Factors that lead to Declines across commodities

The drop in oil prices during March led declines across commodities, according to Citigroup. It estimates commodity assets under management grew about $45 billion in the first two months of the year but gave up $35 billion during the selloff in raw materials in March. Investment inflows should increase in the second quarter.” (The Citi bank predicted.)

“Do commodities need a bit of a prayer to bounce again in ‘17? Not necessary. Commodities stumbled through the first quarter following what was clearly the healthiest year for the sector since the decade began. There was too much froth in critical sub sectors like oil, copper and iron ore. In conclusion, signs of better performance are increasingly clear, despite major risks.”

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