WCU: Oil ready to pop as coffee perks up and gold takes a breather

By Ole S. Hansen    januar 30, 2023

The Bloomberg Commodity Index (BCOM) traded higher for a third week as it continued to recover from an early January selloff that was driven by the IMF’s global recession warning. Gains were broad, although the energy sector was being weighed down by continued weakness in natural gas as prices slumped to their lowest since June 2021. The themes underpinning prices remain the same, with financial markets seeing a softer dollar and lower yields in anticipation of the US Federal Reserve moving closer to pausing an aggressive rate hike cycle. Since starting last March, this has driven the US Fed Funds rate up to 4.5% with the market now pricing in less than two 25 basis point rate hikes before the pause. 

The demand side, apart from the risk of a slowing global economy, is being supported by the prospect of China’s reopening – driving expectations for a pick-up in demand for commodities from the world’s biggest consumer of raw materials. However, with the prolonged shutdown of markets in China during the Lunar New Year holiday, some recent strong gainers, such as copper, iron ore and crude oil paused, thereby allowing other commodities to appear at the top of this week’s leaderboard. In the coming weeks, the risk to supplies of Russian fuel products may add an extra layer of support for gasoline and not least diesel, thereby providing enough support to keep crude oil shielded from recession-related demand fears.