Commerzbank Commodities Radar January 2021

Source: Bloomberg data

The oil market: not a foregone conclusion

The OPEC+ production group, comprised of OPEC countries and several non-OPEC oil-producing nations, should be able to sit back and relax: following a historical slump in global oil demand of nearly 9% and prices as low as US$20 for a barrel of Brent Crude last year, OPEC+ has managed to drive the price significantly to above US$55 again by implementing unprecedented production cuts. But the losses in export business caused by the production cuts were painful. Therefore, it came as no surprise that the group’s unanimity threatened to fall apart.

Hitherto, the alliance has always been able to reach a compromise, time after time: most recently due to very significant concessions made by Saudi Arabia. Fine-tuning the supply level, however, remains a challenge. In view of the high Covid-19 infection figures in Europe and the USA, we think there will be a price drop in the first half of the year. Oil demand in industrialised nations is likely to disappoint once again in the first quarter as a result of continued mobility restrictions. Significant relief provided by vaccinations and seasonal factors is only likely to take effect in the second half of the year. To date, this weakness has been countered by very robust demand from China, but here too momentum is likely to slow.

For the time being, the situation can therefore be summed up as ongoing stuttering demand facing a significantly reduced oil supply. In the short term, supply will be around 8 million barrels less per day than before the crisis thanks to additional production cuts by Saudi Arabia. Furthermore, oil production in the US remains subdued. Whilst its ‘absolute’ low was probably reached in May 2020 at 10 million barrels per day – when production was cut quickly due to fears of excessive inventories – US production should reach its cyclical low in the spring of 2021 at just under 11 million barrels per day, i.e. approximately 2 million barrels per day less than during the peak at the end of December 2019.

In light of the additional reductions by Saudi Arabia, the oil market should be slightly undersupplied in the first quarter. At first sight, this situation seems constructive from a pricing point of view. However, OPEC+ is likely to significantly expand its oil supply as of April because Saudi Arabia will reverse its voluntary productions cuts again and the postponed production increases of February and March will be carried out subsequently. Hence, there is a risk of oversupply in the second quarter if demand does not pick up quickly enough. OPEC+ had actually intended to reduce inventories. Against this background, Brent Crude prices are likely to come under pressure once more during the first half of the year, falling to a level well below US$50 per barrel. This should also weigh on diesel prices even if the latter only benefited disproportionally from the recent price rally. The crack spread does not show its usual seasonal strength because weak demand for kerosene is putting a strain on the entire middle distillates segment. In the spring, diesel is therefore likely to fall once more to US$420 per ton, before climbing back towards US$500 in the wake of a crude oil price recovery and improving margins during the second half of the year.

Source: Commerzbank Research, as of: 12/01/2021


Source: Commerzbank Research, as of: 12/01/2021

in EUR per unit in EUR per unit
Precious metals Agricultural products
Gold per troy ounce High
Low
1,736.99
1,353.03
Cocoa per mt High
Low
2,392.33
1,605.39
Palladium per troy ounce High
Low
2,610.38
1,434.92
Cotton per pound High
Low
0.64
0.44
Platinum per troy ounce High
Low
933.75
553.36
Maize per mt High
Low
219.00
159.00
Silver per troy ounce High
Low
24.78
11.04
Rapeseed per mt High
Low
421.50
335.50
Sugar per pound High
Low
0.15
0.09
Wheat per mt High
Low
213.25
170.00
Industrial metals Energy
Aluminium per mt High
Low
1,705.98
1,312.45
Brent Crude Oil per barrel
High
Low
61.55
17.83
Copper per mt
High
Low
6,512.01
4,301.93
Coal per mt
High
Low
58.70
34.69
Iron Ore per mt High
Low
130.88
71.09
Diesel per mt High
Low
560.83
164.38
Lead per mt High
Low
1,819.23
1,455.56
Electricity per MWh
High
Low
54.88
15.89
Nickel per mt High
Low
14,426.51
10,051.16
EUA per tonne High
Low
33.44
15.71
Tin per mt High
Low
16,838.75
12,403.50
Gasoil per mt High
Low
559.88
176.28
Zinc per mt High
Low
2,334.62
1,675.89
Jet Fuel per mt High
Low
596.44
115.63

* Source: Bloomberg data, period: 01/01/2020 - 31/12/2020

** From the perspective of German companies, the listed commodities are generally priced in a foreign currency. For this reason, currency risks need to be considered in addition to commodity price risks.