The Commodities Feed: Oil rallies as chances of US-Iran deal fade

Oil prices surged yesterday, climbing 3.8% to surpass $82 per barrel, indicating that prospects for a US-Iran deal appear bleak. Negotiations between the two nations have proven challenging, with Iran reportedly seeking to prohibit US and Israeli vessels from the Strait of Hormuz, while demanding compensation for other ships using the waterway.

Iran has also insisted on charging service fees for transiting the strait instead of tolls, creating obstacles to reaching a sustainable agreement. While there have been some signs of progress, the escalating rhetoric and increasing mistrust between the US and Iran suggest that tensions could swiftly deteriorate once more. The current outlook anticipates flows to gradually return to normal in the third quarter, led by Brent averaging $80 per barrel.

However, there remains considerable risk and uncertainty surrounding this prediction. Saudi Arabia has reduced official selling prices for most crude grades and destinations for September shipments, offering a S$0.50 per barrel discount to Asian markets, creating a price gap. This move has prompted Asian buyers to demand further price cuts from Saudi Arabia amid heightened tensions in the Red Sea.

Some tankers are now opting for the longer, more costly route around Africa. Copper prices are nearing record highs, with LME prices trading above $14,000 per ton. This price surge was driven by reports of the DRC restricting exports of copper concentrates. Although the news initially raised supply concerns, its impact on the refined market is expected to be limited due to the majority of DRC copper being exported as cathode.

The market backdrop is still bullish, characterized by low inventories, tight concentrate availability, and ongoing supply disruptions. Tight physical markets, low inventories, and constrained mine supply are likely to continue supporting copper prices. Any disappointment regarding US tariff measures could lead to a period of consolidation.

Nickel prices dipped near their lowest level since July after Indonesia potentially granted extra ore production quotas to a major producer. The prospect of higher Indonesian output has sparked concerns about oversupply, reinforcing expectations of a surplus in the nickel market during the second half of the year. Nonetheless, the company remains cautious, as continued Indonesian supply growth could maintain market surplus levels and limit upside potential.

Brazilian sugarcane crushing fell 14.5% in June compared to the previous year, with sugar production declining 26.3% year-over-year. The decrease in sugar production led to a shift in cane allocation towards ethanol production, with sugar prices trading below ethanol parity, prompting producers to increase their ethanol blends. Currently, 44.5% of cane is used for sugar production, a significant drop from 52.3% in the same period last year.

Cumulative sugar production this season stands at 10.8 million metric tons, a 12.4% decrease compared to the previous year, while cane crush has risen 3.8% year-over-year to 214.5 million metric tons. In Cameroon, cocoa output dropped 20% year-over-year to 247.9 thousand metric tons, marking the lowest harvest in five years. The decline was attributed to adverse weather conditions, aging plantations, and deteriorating soil fertility, resulting in cocoa exports falling 34.7% year-over-year to 125.5 thousand metric tons and domestic grindings decreasing 13.1% year-over-year to 95.9 thousand metric tons.