The oil market is on target for a fourth consecutive week of declines as flows through the Strait of Hormuz increase, with ICE Brent edging closer towards $70/bbl.
Energy – Brent curve reflects improving supply picture
The oil market is on course for its fourth consecutive week of declines as flows through the Strait of Hormuz continue to normalise. The increase in oil flows is putting growing pressure on the front end of the ICE Brent forward curve. It’s increasingly moving into contango, a sign of an oversupplied prompt market. The return of this supply coincides with continued SPR releases. Yet with the flat price falling and the forward curve moving into contango, we could start to see more buying in the market.
Refined product inventory data from Insight Global shows that total product inventories in the ARA region fell by 22kt week-on-week to 4.53mt. These declines were driven by light ends, with gasoline and naphtha inventories falling 75kt and 26kt, respectively. Middle distillates saw some relief, with jet fuel and gasoil stocks rising by 66kt and 16kt, respectively.
In Singapore, refined product stocks fell by 1.73m barrels over the week to 40.45m barrels. While inventories remain below the 5-year average of 45.32m barrels, they recovered from the lows of 34.41m barrels in early June. Declines were seen across the barrel, with light, middle, and residual stocks falling by 665k barrels, 420k barrels, and 648k barrels, respectively.
In natural gas markets, front-month Henry Hub futures in the US came under some pressure yesterday after a larger-than-expected increase in gas storage. US gas inventories increased by 87bcf last week, above the 84bcf expected and the 5-year average of 64bcf. However, an ongoing heatwave across parts of the US will be supportive for natural gas power generation amid increased cooling demand.
Metals – Aluminium under pressure after EGA update
LME aluminium came under renewed pressure yesterday, with the three-month price falling towards $3,000/t as the market continued to unwind the geopolitical risk premium built up during the Middle East conflict.
Sentiment was weighed down by an update from Emirates Global Aluminium (EGA). It said that around 7% of production pots at its Al Taweelah smelter have been restarted, highlighting steady progress in restoring output following the missile and drone attacks earlier this year.
The update reinforced expectations that supply disruptions in the Gulf will prove temporary. Concerns over lost Middle Eastern production and shipping disruptions through the Strait of Hormuz helped lift prices sharply earlier this year. But recovering output and easing regional tensions have steadily improved the supply outlook.
While a significant portion of Al Taweelah’s capacity remains offline and a full recovery will still take time, the latest update reinforces expectations that lost supply will gradually return to the market. This is easing concerns over aluminium availability.
In precious metals, gold moved sharply higher yesterday after weaker-than-expected US jobs data eased concerns that the Federal Reserve may need to raise interest rates this year. The softer payrolls report pushed Treasury yields and the US dollar lower, improving the appeal of non-yielding assets such as gold.
The move added to gains seen earlier in the week following less-hawkish-than-expected comments from Fed Chair Kevin Warsh. Investors are increasingly reassessing the outlook for US monetary policy. The market will remain focused on incoming economic data to determine whether the recent moderation in labour market conditions continues. This could further reduce pressure on the Fed to tighten policy and remain supportive for gold.
Meanwhile, central banks returned as net gold buyers in May, adding around 41 tonnes, according to the World Gold Council. Poland remained the largest buyer, purchasing 18 tonnes and lifting year-to-date acquisitions to 64 tonnes. China extended its buying streak to 20 consecutive months, adding 10 tonnes. Uzbekistan and Kazakhstan increased reserves by 9 tonnes and 7 tonnes, respectively.
Russia, by contrast, was a net seller, reducing its holdings by 6 tonnes in May and taking year-to-date sales to 34 tonnes. Turkey also cut its gold reserves by 3 tonnes, bringing total sales this year to 81 tonnes. Strong central bank buying continues to provide an important source of support for the gold market.
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