However, it should be noted that the disparities between individual sectors are starting to deepen and the results are much less in sync than they were in the first half of 2021. The weakest sector – currently and for most of 2021 – remains the precious metals sector. The unwarranted, unwarranted stock market boom and concerns about inflation are offset by the prospect of reduced fiscal stimulus by central banks, which could lead to higher government bond yields and a potential dollar rally.
The dollar is another major factor in guiding the direction of the commodity markets. It remains strong, hampering the positioning of raw materials that are more sensitive to the US currency exchange rate, such as investing in metals or major agricultural products. Better-than-expected US retail sales data provided additional support to the dollar, along with demand for safe-haven investments, as the crisis of Evergrande, the world’s most indebted real estate developer, not only in China but also in the world, continues to deepen. If the government fails to address this situation, there is a risk that the crisis will spill over to rival companies and the entire Chinese economy.
As in the past two weeks, it is impossible not to mention the huge jump in gas and electricity prices in Europe, which are increasingly affected by energy-intensive industries, from chemicals and fertilizers to cement and even sugar producers. This year, there was a perfect storm in the form of beneficial price phenomena that pushed gas prices to a record: the price of the Dutch standard gas TTF contract with the earliest expiration date sometime reached €76.5/MWh or $26.8/MMBtu, which is A record figure equivalent to 150 US dollars per barrel of oil.
German base energy prices with next year’s delivery date come to €108/MWh, nearly 2.5 times the five-year average for this period of the year. We are also concerned about UK consumers, who have found themselves in the most disadvantaged group, as the UK electricity grid has seen a sharp decline in power from wind turbines. The British counterpart of the aforementioned Dutch TTF contract reached an unimaginable level of 260 euros / megawatt-hour, after which it fell slightly.
Here are the main reasons for the current price hike. While some may eventually change and lead to a downturn, the prospect of another cold winter worries everyone, from consumers to industry and even politicians.
The latter may fear blackouts, in part due to green transformation initiatives that make it difficult to maintain the necessary base load levels on the power grid.
Uncertainty related to the launch of Nord Stream 2, a potential additional source of gas supply
– US LNG supply problems due to disruptions caused by Hurricane Ida
– Low wind power production in Europe, with Orsted, the Danish renewable energy market leader, declaring an “exceptionally weak quarter in terms of wind”
Limited energy production from Norwegian hydroelectric plants
Gas stocks fell for more than ten years before peak demand in winter.
It marked the fourth consecutive week of growth, and the August price crash caused by the Covid pandemic was long forgotten as oil and natural gas prices continued to be affected by Hurricane Ida. Producers of both commodities are still struggling to resume production on rigs in the Gulf of Mexico, and the International Energy Agency, in its latest monthly oil market report, forecasts a potential loss of more than 30 million barrels.
Due to the fact that refineries are also experiencing difficulties in resuming their operations, there has been a sharp decrease in stocks of gasoline and diesel, which has a positive effect on prices. Add to this the transfer of the aforementioned increase in global gas prices to the US market, as well as the expectations of the International Energy Agency that assume a strong increase in demand by the end of the year with the effects of the epidemic disappearing again, and we will have the market where the bulls will once again take control.
However, concerns about demand in China, a further recovery in production in the United States, and the prospect of more oil being freed from strategic reserves in both countries could limit other short-term gains above the multi-year trend line hitting a record high in 2008, now just under $77.
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