A weak end to the week for major commodities as investor sentiment soured, despite the solid data from China earlier in the week and US manufacturing on Friday.
Oil prices fell on Friday, weighed down by higher US crude stocks, another rise in drill rig numbers and worries that new pandemic restrictions in China will curb fuel demand in the world’s biggest oil importer.
US crude fell 1.94% to $US52.10 a barrel and Brent was at $US55.21, down 1.6% on the day. For the week US crude was down 0.12% but Brent ended marginally higher with a rise of 0.38%.
“The pandemic seems to continue to expand into a second wave in China, with infections rising by the day and reaching again different regions such as Shanghai,” Rystad Energy oil markets analyst Louise Dickson told Reuters.
US crude inventories surprisingly rose by 4.4 million barrels in the most recent week when the market was expecting a fall of 1.2 million barrels.
Strong demand from China (much of it driven by the record low prices in April and May) helped push prices up in 2020 but now that COVID has broken out again in the past fortnight, there are fears that support could now start fading with a series of lockdowns and new restrictions.
And demand in the US remains weak – air travel is a fraction of what it was in January 2020 and in 2019, meaning demand for jet fuel is still ultra weak, according to the US Transportation Department.
The 10 US airlines flying reported operating 387,481 flights in November, compared to 372,544 flights in October and the all-time monthly low of 180,151 flights in May. Airlines operated 649,511 flights in November 2019. The department said that was a fall of more than 40% over the 12 months.
And despite a boost in petrol output in the past month, actual demand from drivers remains weak. For example travel on US roads fell 11% in November, a steeper decline over October road use as coronavirus cases increased, according to data from the US Transportation Department on Friday.
Energy firms this week added oil and natural gas rigs for a ninth week in a row amid higher energy prices over the past few months.
The oil and gas rig count, an early indicator of future output, rose five to 378 in the week to January 22, the highest since May, energy services firm Baker Hughes Co said in its weekly report on Friday.
Despite gains in recent months, that count is still 416 rigs, or 52%, below this time last year. The total count, however, has soared since hitting a record low of 244 in August, according to Baker Hughes.
Oil rigs in use rose by two to 289 the highest since May, while gas rigs rose three to 88, the highest since April, according to the Baker Hughes report.
Domestic US production remains stuck at 11 million barrels a day – down around 2 million barrels a day from a year ago when it was close to its peak.
Meanwhile gold, copper and silver weakened last week.
Comex gold ended the week around $US1,855, down roughly 0.7% for the day but up 1.5% for the week.
Comex silver ended up slightly at $US25.565. It was up more than 2% over the week.
Copper ended at $US3.62 a pound, down a touch on the day but up half a per cent for the week.
The weaker greenback over the week provided most of the bounce.
Iron ore prices fell on Friday with the price of 62% Fe fines down around 1% or $US1.54 a tonne to $169.97.
That was down $US3.72 or 2.1% for the week.
The price of 65% fines from Brazil fell $US1.40 on Friday to $US193.30 a tonne, a fall of $US160 over the week.
In London, LME copper fall on Friday with the benchmark three month price down 1.8% at $US7,877.50 a tonne.
That’s well under the eight-year high of $US8,238 on January 8 this year. The fall has come despite solid consumption and import data from China for December and 2020.
Like in the oil market, copper and other traders are starting to focus on the new round of COVID cases in China and the damage the virus is continuing to inflict on Europe, the UK, Japan and especially the US.
But copper stocks on the LME, Comex and in Shanghai continue to dwindle so there is no sign of any rise in stocks as the price weakens.
China reported 103 COVID-19 cases on Friday, with Beijing launching mass testing in some areas and Shanghai testing all hospital staff.
Thanks to COVID’s continuing spread (again) economic activity in the eurozone shrank markedly in January, the mid-month activity surveys showed, while forecasters surveyed by the European Central Bank cut their growth expectations for the region this year.
While the same surveys showed US manufacturing activity at 13 and a half year highs, Japan’s factory activity slipped into contraction in January and inflation is now deep in deflation, falling 0.1% in December from November and 1.2% over all of 2020.
LME aluminium, nickel (down 2.4% on Friday), lead and zinc all weakened on Friday.
Tin was down 0.6% at $US21,860 a tonne on Friday, a natural reaction after tightness in the LME system pushed prices to $US22,395 on Thursday. That’s the highest since 2014.