Mounting Supply Risks Fail to Lift Energy Prices, US Natural Gas Storage Declines

Despite mounting supply risks related to sanctions, energy prices edged lower yesterday, with ICE falling back below US$82/bbl. The market, technically overbought, is overdue for a correction. However, the ongoing supply risks continue to support oil prices. The incoming Trump administration is evaluating recent sanctions against Russia as a tool to push for peace deals in Ukraine. There are also hints of an aggressive approach towards Iran and Venezuela. More clarity is expected post-inauguration next week.

The impact of US sanctions against Russia has led buyers to seek alternatives. Saudi Aramco has received requests from Chinese and Indian buyers for additional oil. The latest data from Insights Global indicates an increase in refined product inventories in the ARA region, driven by gasoil and naphtha. Meanwhile, Singapore saw a decrease in inventories, particularly in light distillates and residuals.

The EIA’s weekly storage data shows a significant decline in US gas storage, the third-largest since early 2022. European storage levels remain below the five-year average, with milder weather expected to slow the pace of draws in NW Europe.

Metals – Aluminium Rallies to a One-Month High

LME aluminium reached a one-month high following a decline in inventories in China, signaling improved spot demand. The European Union is considering more import restrictions on Russian aluminium, as European buyers have reduced imports since the invasion of Ukraine. Russia now accounts for 6% of European imports of primary aluminium, down from 2022 levels.

Agriculture – Cocoa Grinding Declines

Cocoa grinding data for the last quarter of 2024 weakened due to high prices in the cocoa market. Global output forecasts for corn and wheat have been adjusted by the International Grains Council, impacting global ending stock estimates.

Analysis: The energy market faces pressure from supply risks despite sanctions, while the metals market sees a surge in aluminium prices. In agriculture, cocoa grinding has declined, impacting global output forecasts. These trends highlight the importance of geopolitical factors and supply-demand dynamics on commodity prices and global markets.