Sat, January 28, 2023

Lockdowns Begin to Weigh On Oil Markets

Oil market COVID BEAR

Opec and Energy

ICE Brent started the day yesterday on quite a positive note. However, it did not last as later that evening after OPEC further revised down its demand estimates for 2021; thus, all the gains lifted in the morning gave up and went crumbling down.

The organization lowered the demand growth estimates to 5.9MMbbls/d for 2021 compared to its earlier estimates of 6.25MMbbls/d. The main reason was the existing uncertainty on transport fuel demand, especially in OECD countries.

For now, the only hope glimpsing teasingly is the vaccine for COVID. It should help normalize economic activities and transport movement. For now, OPEC expects that mild winter, fuel efficiency gains, and the continuation of oil displacement programs will continue to limit oil demand growth.

The vaccine should help normalize economic activities; however, OPEC expects that mild winter, fuel efficiency gains, the continuation of oil displacement programs, and subsidy removal will limit oil demand growth.

Demand estimates for the first quarter of 2021 are revised down by around 1MMbbls/d.

In the US, EIA expects US shale oil production to fall by 137Mbbls/d MoM to 7.45MMbbls/d in January 2021.

Metals

2020 has been hurting everyone, especially the global economy, and COVID-19 has been one of the main actors helping out dramatize the scenery. The second wave of dangerous virus and more restrictive lockdowns are denting market sentiment.

US mining company Freeport-McMoRan signed a deal with major Chinese smelters to supply copper concentrate with treatment charges of USD59.5/t -the benchmark for 2021, lower when compared to USD 62/t for the current year supply deals.

This Thursday morning, the ShFE market remained buoyant after the positive macro data release showing that total investment stood at 2.7%. In fact, year-to-date and investment in new infrastructure projects jumped by 14.5%

Meanwhile, on Thursday, LME nickel rose by 2.9% to US$17,780/t. It was the highest level since October 2019.   The latest LME data shows that exchange inventories for lead jumped +9.3%)after falling for eight consecutive days. Well, at least some good news in 2020.

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