The Commodities Feed: Middle East conflict keeps oil well supported

The latest commodities feed reveals that the Middle East conflict is keeping oil prices supported. Following President Trump's announcement of an energy ceasefire between Russia and Ukraine, the oil market initially experienced some weakness, but it has since recovered. ICE Brent settled just shy of $107/bbl, marking the highest close since mid-September.

This upward momentum is driven by concerns over recent developments in the Middle East, particularly Houthi attacks on Saudi Arabia and lingering risks to oil flows from the Persian Gulf.

There is also skepticism surrounding the Russia-Ukraine energy ceasefire, as Russia has reportedly breached the agreement by surpassing Ukraine's energy targets. The Persian Gulf may witness further bypass volumes in the near future. Saudi Arabia aims to expand its pipeline export capacity to 10 million barrels per day, with about 1.2 million barrels per day achievable through converting a gas pipeline to crude, potentially available within 7-8 weeks. However, further expansion could take up to three years.

Meanwhile, hurricane activity in the Gulf of Mexico continues to disrupt offshore operations for US producers, with nearly 605,000 barrels per day of oil production shut-in, equivalent to nearly 30% of total US production in the Gulf. Nevertheless, output has been recovering, with up to 1.5 million barrels per day shut-in on Friday. The European natural gas market is experiencing stronger prices, with front-month TTF futures settling above EUR84/MWh and trading at its highest level since December 2022.

This market uncertainty stems from the idea that the Northern hemisphere winter is approaching with limited Persian Gulf LNG supply, potentially leading to increased competition between Asian and European buyers and leaving the market vulnerable to spikes higher. Additionally, some EU member countries are mandated to buy gas to meet storage targets.

Germany is adding support to European gas prices, but EU gas storage is currently at 75% of its capacity, below the 83% seen at the same stage last year and also below the 5-year average of 89%.

In the metals market, copper is nearing record highs, driven by supply concerns following a fatal avalanche at Chile's El Teniente mine. The open pit mine, which accounts for less than 10% of El Teniente's output, has suspended operations, while the rest of the mine remains functional. Chinese demand is well-supported, with the Yangshan copper premium remaining near $130 per tonne, close to a four-year high.