Oil and other commodity prices are falling on expectations of a recession and a new lockdown in China

Source:  GrainTrade

Traders are actively selling commodity assets in anticipation of a recession and a drop in global demand. As a result, after a long weekend, the prices of oil, grain and oilseeds fell sharply on the US stock exchanges yesterday.

September futures for Brent oil fell 10% to $102.9/barrel yesterday, and WTI oil fell 8.7% to $99.6/barrel, losing 13.7% and 16.4% for the month % respectively.

The main reasons for the collapse of quotations were:

  • Rapid strengthening of the dollar against other currencies to a 20-year high.
  • It is possible to introduce a lockdown in China after 66 new cases of covid-19 were detected in Jiangsu, the country’s second-largest province in terms of economic production, as well as against the background of another disease in Shanghai, which was the reason for mass testing.
  • A significant drop in the combined purchasing managers’ index (PMI) of 19 Eurozone countries calculated by Markit Economics in June from 54.8 to 52 points and the indicator of activity in the service sector from 56.1 to 53 points.

Citigroup analysts predict that in the event of a recession and a drop in energy demand, oil prices could fall to $65/barrel by the end of the year.

But traders are still ignoring the war-induced reduction in oil supplies from Libya and Nigeria, as well as the inability of the OPEC+ countries to meet production increase payments for the second month in a row. In June, OPEC+ cut production by 120,000 barrels/day to 26.6 million barrels/day due to capacity shortages.

Following oil prices, the prices of other commodity assets also fall rapidly.

August palm oil futures on Malaysia’s Bursa fell another 4.2% to 4,174 ringgit/t or $945/t yesterday, having lost 17.6% in three sessions.

July soybean oil futures on the Chicago Stock Exchange fell 8.8% to $1,333/ton, losing 20% of the price in three sessions.

November canola futures fell 2% to CAD 830/t or $636/t yesterday, losing 6% in two sessions. Stats Bureau of Canada estimates that the country’s canola acreage will decline by 1 million acres from last year to 21.415 million acres, but traders are not taking that into account for now as better weather than last year gives them optimism.

August rapeseed futures on the Paris MATIF fell 5.4% or €36/t to €663.25/t or $681/t in four sessions, pressured by a weaker euro against the dollar to $1.0269/€.

Quotations for wheat, soybeans and corn on the exchange in Chicago also fell by 3-4%, despite a slight deterioration in the condition of the crops, indicating a speculative factor in the price reduction.


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