Commodities: Stronger on improving expectations of the fundamental outlook - ANZ

Research Team at ANZ, notes that the commodities were stronger yesterday as improving expectations of the fundamental outlook for commodities negated the impact of the stronger USD.

Key Quotes

“Crude oil surged as prospects of OPEC reaching agreement over production cuts increased. Iranian Oil Minister Bijan Namdar Zangeneh said it’s “highly probable” OPEC will reach a consensus at the talks. This was followed by comments from Russian President Putin, who said there is a strong likelihood that an agreement will be reached. This has seen a surge in long positions in WTI held by traders to 1.47 million contracts. This is the highest level since 2007.”

“Optimism returned to the industrial metals complex despite a stronger USD. This saw a broad-based rally across base metals. Copper was boosted by another fall in inventories on the LME. Stocks are now down nearly 30% over the past month, suggesting the market has tightened quickly. Iron ore bucked the trend amongst the metals as increasing stocks and pessimism about demand weighed on sentiment. China port stockpiles rose +2.6% to 110.58 million tonnes last week – the highest since September 2014. Steel prices were also weaker, with rebar and hot rolled coil futures down 2.1% and 0.9% respectively.”

“Gold kept its head above water, with technical-based buying supporting the market. However, with the market increasing bets on a December rate hike in the US, this buying is unlikely to persist in the short term.”

“Agriculture markets were stronger, with buyers returning to the market after some heavy selling recently. CFTC data showed hedge funds had slashed their net long in the top 13 US-traded agriculture commodities by more than 150,000 lots in the week to last Tuesday – the biggest bearish shift in positioning in nine months.”