Oil prices signalling a deeper secular decline in commodity markets? - Westpac

David Goodman, analyst at Westpac, suggests that the global commodity outlook has been clouded by the impact of tariffs, slowing global growth, weaker Chinese growth, the stronger US$, rising production and inventories.

Key Quotes

“For crude markets, the spike in October to over US85/barrel was driven by supply fears (US sanctions on Iran, Venezuela supply disruptions, limited spare production capacity), however the recent sharp falls in crude markets have been just as striking. While positioning was clearly a factor behind recent weakness, we note the US is now the world’s largest producer of crude and this has changed the global supply balance.”

“US Permian production has come to market much faster than many thought and a wave of pipeline capacity coming online next year will bring this crude to market meaning that OPEC+ will have their work cut out to maintain price stability. However, it seems fair to argue though that the weakness in crude/ nickel/ lead and zinc have been driven more by idiosyncratic factors rather than by secular forces.”

“Even after the recent drop, iron ore & coking coal prices are still up on a 6m annualised basis; LNG & thermal coal prices only modestly lower. The drivers of crude are not necessarily the drivers of commodities in general.”