In recent times, the commodities market has exhibited fluctuations, particularly in the energy and metals sectors, notable amongst these are the movements in oil prices and copper values. These shifts bring to light the complex interplay between geopolitical tensions, notably tariff impositions, and market anticipations concerning supply and demand. As the deadline on the 1st of August for the implementation of new tariffs loomed closer, apprehensions about the impact on global trade dynamics heightened, casting a shadow over commodity prices.
The Conundrum of Oil Surplus and Market Dynamics
Yesterday, the oil industry experienced a modest decline in prices, with ICE futures closing 0.9% lower, amidst fears surrounding the impending tariff deadlines. This downturn is exacerbated by the projection that a significant surplus could destabilize the market towards the end of the year. Nevertheless, it begs the question of whether such a surplus will indeed overwhelm the market as previously feared.
Observations from two months ago showed an intriguing pattern in the ICE Brent forward curve, indicating a state of backwardation up until the November 2025 contracts, followed by a switch to contango – a pattern reflecting market sentiments of an impending surplus from the fourth quarter onwards. However, a subsequent review reveals a marked alteration in the forward curve’s trajectory, which now suggests backwardation extending into early next year, a relatively stable period throughout 2026, and a gradual shift to a mild contango through 2027. This discrepancy between the forward curve and the more pessimistic supply and demand projections raises questions about the inevitability of a large surplus.
This conjecture is further supported by the Dec-25 – Dec-26 spread, which transitioned from a contango position of over US$1.80/bbl in early May to a current state of backwardation around US$0.65/bbl. Despite the surplus projections, the relatively low inventories may provide a buffer, not only stabilizing timespreads but also the flat price of oil.
Latest data from the American Petroleum Institute indicates a decrease in US crude oil inventories by 577k barrels over the past week, although the WTI delivery hub in Cushing saw a 314k barrel increase. As summer progresses, gasoline stockpiles diminished by 1.2 million barrels, reflecting the seasonally heightened demand. Conversely, distillate stocks experienced a 3.5 million barrel surge, offering a reprieve to the tightening middle distillate market. Eyes are now set on the upcoming report from the Energy Information Administration for further insights.
In Europe, natural gas prices have maintained stability after a period of decline, fueled by an uptick in storage levels and a resumption in Norwegian gas flows following unexpected disruptions. With storage facilities over 65% full, efforts continue to ensure ample LNG supplies are available for the upcoming winter, despite levels trailing behind the 5-year average of 74%.
Copper’s Ascent and Global Trade Dynamics
On the metals front, copper prices are once again approaching the $10,000/t benchmark, propelled by signs of increased demand from China, evidenced by a surge past $9,920/t in recent trading sessions. This uptick follows Chinese Customs data, revealing a 15% jump in refined copper imports in June over the previous month. However, US copper scrap imports into China have significantly dwindled, hitting a 21-year low, due in part to a hefty 50% tariff set to be enacted, leading to shipments plummeting below 2,000 tonnes.
As the US remains a net exporter of copper scrap with China being the principal destination, the comprehensive impact of the impending copper tariffs, including potential exemptions, remains uncertain. This development comes amidst China’s procurement of other metals, with iron ore prices reaching a five-month peak following announcements of a monumental hydropower dam project in Tibet, poised to stimulate industrial metal demand further.
Conclusion
As this complex narrative unfolds, the commodities market continues to be shaped by a myriad of factors including geopolitical developments, market speculation, and the intricate balance between supply and demand across various sectors. Whether these projected surpluses and shifts in market dynamics will come to fruition remains to be seen. However, what is clear is that the commodities market remains a vital indicator of global economic health and trends, deserving of close observation and analysis.
Disclaimer: This article has been crafted for informational purposes alone, based on data and analyses available up to this point in time. It does not constitute financial advice or an incitement to trade.
Original concepts sourced from ING analysis.
