Commodities corner: Dumpster diving

Rising interest rates, the soaring US dollar and renewed recession worries sent commodities prices lower on Friday ending a week that saw downward pressure on oil and precious metals, along with agriculturals.

Gold fell to two and a half year lows and US oil futures dropped under $US80 a barrel for the first time since early January and before Russia’s invasion of Ukraine in late February.

In fact markets ignored Vlad Putin’s ratcheting up of pressure by a partial mobilisation and more threats about stepping up the intensity of his aggrandisement – that was very much unlike the initial reaction in late February and through March and several times since.

Rightly or wrongly, commodity markets in effect called Putin’s bluff last week and ignored his rhetoric.

Wall Street shares plunged tough, US crude oil futures dropped nearly 6% and the dollar touched a two-decade high, making US grains and metals less competitive, thanks to rising rates from the Fed and growing worries about the health of the world economy.

“Everything is interpreted through the lens of global recession that negatively impacts demand for commodities, leading to the selling as we head into the weekend,” StoneX chief commodities economist Arlan Suderman wrote in a client note quoted by Reuters.

US West Texas intermediate (WTI) crude futures fell more than 5% for the day and 7% for the week after they settled at $US78.74.

Brent crude settled at $US85.04 to be off 4% on the day and 5.8% for the week.

LNG prices in Asia fell nearly 6% on Friday to around $US37a million British thermal units (mBtus), down around $US5 and half the level they were at the start of the month.

US oil and natural gas rig numbers rose for a second week in a row even as the count is heading for a second monthly fall in a row.

The US oil and gas rig count rose by one to 764 in the week to last Friday, according to energy services firm Baker Hughes Co.

Baker Hughes said that puts the total rig count up 243, or 47% in the past year.

US oil rigs rose three to 602 this week, while gas rigs fell two to 160. The total rig count fell in August and was on track to fall again in September after rising for a record 24 months in a row.

“We’re seeing relentless dollar strength here and that’s going to keep gold vulnerable in the short term,” Edward Moya, senior analyst with OANDA, told Reuters.

“The economy is clearly heading towards a recession. The risks of a hard landing are elevated, and this has been just continuing to drive flows into the dollar, which has been bad news for gold,” he said.

“This should see (gold) prices trading broadly sideways over the rest of the year,” Fitch Solutions added in a note to Reuters.

Comex gold slumped further away from the $US1,700 an ounce level, settling at $US1,643 an ounce – down nearly 1.8% on the day and 1.3% for the week.

Comex silver did worse, dropping 4.1% on Friday to end at $US18.85. Comex copper dropped 3.5% for the day to close at $US3.35 a pound which was down 3.6% for the week.

Iron ore prices weakened on Friday to end at $US96.30 a tonne for 62% Fe fines, down $US1.71 from the previous Friday.

Hard coking coal jumped $US22 a tonne to $US269 a tonne while Newcastle thermal coal finished Friday at $US405 a tonne, down 2.6% for the day and 2.8% for the week.

The current month price though was still high at $US435 a tonne, down 0.9% for the week.

US wheat futures fell about 3% on Friday, joining a broad sell-off in commodity and equity markets tied to fears of an economic downturn that would dent demand.

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