Commodities outlook: Oil saga not over

The long-awaited OPEC meeting in Vienna didn't disappoint the gossips. Was it a 300k barrels per day (bpd) rise? A 1.5 million bpd rise? Would Iran let it happen? It was all up in the air. 

At first, investment bank commentary pointed to a hike of 1-1.5 million bpd expected, and this prepped the markets for the consensus.  Saudi Arabia and Russia also confirmed these reports with their own comments, and Trump also requested something along these lines based on the financial news reports. 

Then there was the issue of the Iranian vote. Iran had been scorned by the US which left the nuclear agreement and clearly wanted to throw a spanner in the works. But, on the day of the vote, it met with Saudi Arabia counterparts before the meeting and thrashed out a deal. 

The final act of the OPEC saga followed, with reports from a twitter journalist emerging of a 600k bpd hike (on paper, nominal 1 million) being agreed and, as the market was prepped for 1-1.5 million, prices duly rallied. 

Second-half demand for oil is said to be strong, and OPEC has always maintained that there is adequate supply to meet demand; it is just about the balance. Nevertheless, this doesn't seem to be over, and summer in the US sees demand jump. Put simply, even the shale-pumping Americans will need to import the black stuff in order to meet demand.

Past performance is not a guide to future performance

Trump has now caused a storm worldwide, and this trade war situation may escalate into the next big theme in the markets as it seems they are no longer empty threats. 

Not only did the US president tax imports on Chinese goods, he has now imposed a 20% tax on car imports into the US which sent the likes of BMW and Daimler shares tumbling. Trump then sent out a tweet saying they should concentrate on making the cars at home. 

Subsequently, base metals have been hit hard, obviously copper is the main base metal to track but I want to point out aluminium. Aluminium has now moved below a major support level of 2,200 in the futures contract, this means the metal has fallen more than 20% from 2,715 to 2,159 since the 19th April.

That is a big hit for any aluminium producer, and dollar strength has hit emerging nations hard. So, if any of those companies produce the commodity, they have to sell in USD and see demand in an uncertain state.  

Back to the majors, and copper is looking very soft. We are now heading to the $3/lb area (see chart below) which was so vigorously defended in recent times. The future of this metal is now in the hands of the 'trade war' story. 

At the weekend we will get important data from China, and this could be important given risks to the downside. Watch for any break of these important levels if there are any more Chinese or American sanctions.

Past performance is not a guide to future performance

Gold has been an anomaly of late. Of course, the strong dollar will hit the precious metal, but when stocks fall or tensions rise, you would historically expect the safe haven asset to improve. 

As this is not the case, one of the most obvious explanations is emerging markets selling their holdings to raise funds to tackle inflation. EM countries are notorious for holding gold and, as recently reported, they have started raising interest rates to tackle the issues. 

This issue affects us greatly as gold is now slightly lost. Having said that, there is likely a level where gold becomes attractive again and, on the chart, it seems anything below $1,250/oz could be met with a wall of demand (see chart below). 

The big level on the weekly chart below is the $1,190/oz area, but it would take a lot for it to get there. 

Past performance is not a guide to future performance

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