Commodities: Downward Demand Revisions

By Warren Patterson and Wenyu Yao of ING Economics

Wednesday, March 31, 2021 3:52 AM EDT

Energy

Oil has managed to hold its ground this morning, despite the API reporting overnight that US crude oil inventories rose by 3.91MMbbls over the last week. The bearish crude oil build was likely to offset somewhat by the large 6.01MMbbls gasoline stock drawdown. Continued USD strength has also had a limited impact on oil prices so far today, whilst reports that the OPEC+ Joint Technical Committee (JTC) have revised lower their demand growth forecasts for this year from 5.9MMbbls/d to 5.6MMbbls/d has had little impact on the market.

Instead, the market continues to be focused on the OPEC+ meeting taking place on 1 April. As we have mentioned, there does appear to be a growing consensus that the group will likely roll over the current cuts, with them wanting to avoid a sell-off in the market, particularly given the more recent flaring up in Covid-19 cases. The OPEC Secretary-General has also told the JTC that OPEC + needs to “remain very cautious”. However, OPEC+ are still of the view that inventories will fall below the 5-year average by July, and that is assuming that the current level of cuts are not rolled over. Clearly, a rollover would only speed up the process of drawing down stocks.

Metals

The metals complex remains under pressure amid the strengthening US dollar. While market-based inflation expectations fell for the second day in a row, with the breakeven 30y seeing the steepest decline since last November. It seems that the US infrastructure plan (with details to be unveiled later today from President Biden) has not sparked any optimism in the industrial metals market. The bond market seems to be focused on how he plays for the massive plan, with yields rising, which saw gold tumble below US$1,700/oz.

Fundamentally, copper stocks continue to rise in LME warehouses, with another 105kt delivered into European-based sheds. On the contrary, aluminum stocks have started declining, after a strong surge earlier this month, which is suspected to be driven by warehouse rent play. In the China market, seasonal stock building in metals seems to be peaking, with both aluminum and zinc extending a steady decline. The trend usually signals increasing demand in the coming quarter, aligning with expectation. Strong demand has already started unfolding, with major steel products' prices continuing to gain amid declining stocks. Flat steel prices, in particular, have been outperforming others, driven by stronger demand from manufacturers of white goods, automotive, and shipping containers.

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Disclosure: This publication has been prepared by the Economic and Financial Analysis Division of ING Bank N.V. (“ING”) solely for information purposes without regard to any ...

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