Commodities Sector Eyes Fourth Weekly Gain

(MENAFN- Khaleej Times) The commodities sector is heading for its fourth consecutive weekly gain, and throughout August, the sector has been supported by a combination of a softer dollar, lower Treasury yields, and expectations the US federal Reserve will announce the first of several cuts at the September 18 FOMC meeting.

Traders and analysts watching US economic data have gone from fearing a sharp slowdown to a soft landing, and with inflation continuing to drift lower and China showing signs of improvement, the demand outlook for growth- and demand-dependent commodities has improved.

At this point, however, plenty of uncertainty exists.“While we see the month-long correction as having run its course, the prospect for a strong rebound remains limited until the global economic outlook strengthens further - not least in China and Europe, where expectations for economic growth continue to deteriorate,” Ole Hansen, head of commodity strategy at Saxo Bank, said in a note.

The Bloomberg Commodity Total Return Index traded up around 1.3 per cent on the month, and 2.2 per cent on the year, with losses across the energy sector - led by fuel products and natural gas - and a much-reduced loss in grains being more than offset by gains across industrial and precious metals, and not least softs, where weather woes gave sugar, coffee, and cocoa a fresh boost. It is worth noting that cocoa and EU natural gas, both of which trades sharply higher are not part of the BCOMTR index.

Analysts expect September to deliver some volatility, not least driven by the market's response to how the FOMC will present and deliver the expected rate cut, and how it may impact the dollar, which rebounded last week from a seven-month low.“Interest rate-sensitive investors may cheer the beginning of a rate cut cycle, which may increase appetite for industrial metals towards restocking, and gold as the lower cost of carry helps attract fresh demand from ETF investors. In the past seven years, gold has, for various reasons, struggled during September, resulting in an average loss during this time of around 3.2 per cent. While a repeat cannot be ruled out, we suspect a correction may end up being short-lived, given multiple supporting factors amid an uncertain world,” Hansen said.

Crude oil will be focusing on Opec+ and whether the group of producers will go ahead with an October production increase, a decision that has been easier to“sell” to the market during a time when Libya's political feuding threatens the return of oil supply chaos, with around 500,000 barrels a day already offline after authorities in the east shuttered production amid a fight with the Tripoli-based government for control of the central bank and the money generated from the country's oil production.

Crude oil continues to trade within a narrowing range after once again managing to find support ahead of key levels around $71 in WTI and $75 in Brent, while the upside remains capped with the 200-day moving average offering resistance in WTI at $77.90, and Brent at $82.25. Overall, the $7.35 range in Brent, the narrowest since May, was caused by the alternating focus on demand concerns as seen through falling refinery margins and geopolitical-related risks to supply, especially in Libya, where production this past week almost halved after authorities in the east shuttered production amid a fight with the Tripoli-based government for control of the central bank and the money generated from the country's oil production.

Since Opec+ announced a 2 million bpd production cut in October 2022, Brent has traded mostly sideways, averaging a bit more than $83, and while OPEC+ through this strategy has stabilized prices, it has also encouraged non-OPEC+ production, now complicating efforts to increase output without harming prices.“However, the loss of around 500,000 barrels a day of supply from Libya and increased focus on compliance from countries that have overproduced oil, including Iraq, Kazakhstan, and Russia, are likely to support a planned gradual increase from October, which if carried out in full, could see 2.5 million barrels per day of supply being added to the market between October and September 2025,” Hansen said.

Gold slipped on Monday to a week's low of $2,501.20 per ounce. After reaching a fresh record high at $2,532, gold spent the remainder of last month trading within a narrowing range between resistance above $2,525 and a succession of higher lows providing support ahead of $2,500.“We are seeing several drivers supporting an ongoing rally in gold, and unfortunately, several of these relate to buyers seeking a hedge against what can best be described as a troubled world,” Hansen said.

The grains sector will also be watched closely during September as the result of this year's northern hemisphere harvest becomes known.“The sector trades down 20 per cent on the year amid the prospect of another bumper crop being added on top of leftovers from last year, but at the same time it remains the most shorted sector by large speculators such as hedge funds, and any late adverse weather developments could trigger some major adjustments and price moves,” Hansen said.

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