Commodities Corner: Fight-or-Flight Response

By Glenn Dyer | More Articles by Glenn Dyer

Oil prices hit a new set of seven-year highs last week, adding to the inflationary outlook in major economies like Australia, the US, China and much of Europe.

At the same time gold and silver did well, hitting two-month highs last week, and iron ore also reached levels not seen since last October at well over $US 130 a tonne.

But the crypto market suffered major losses, with bitcoin plunging below $US35,000 on the weekend, down 50% from its most recent highs two months ago (see separate story).

Gold prices rallied $US20 on the week and silver prices surged more than 3%, as investors flocked to safe-havens – a move that also capped the rise in US bond yields as well ahead of the Federal Reserve meeting this week.

The standout move that was the rise in confidence and prices in the oil market which followed the International Energy Agency (IEA) upgrading its 2022 outlook for oil demand.

The IEA lifted its global oil demand growth outlook for 2022 because of easing COVID-19 restrictions – despite the surging cases of the omicron variant of the coronavirus.

There remain continuing concerns about supplies wi Russia threatening Ukraine and the Middle East back on the boil with new attacks in Yemen.

The IEA increased the demand outlook by 200,000 barrels a day to a growth of 3.3 million barrels per day for 2022. The agency also expects an increase of 200,000 barrels per day to 5.5 million barrels a day for 2021.

Oil demand for the first quarter of 2022 is forecast to run into a “seasonal decline,” driven by more work-from-home setup and less air travel, following an increase of 1.1 million barrels a day to 99 million barrels per day in the fourth quarter of 2021, the IEA said in its first monthly report for the year.

Oil supply worldwide could see a “Saudi (Arabia)-driven gain” of 6.2 million barrels a day if the Organisation of the Petroleum Exporting Countries and its allies decide to fully unwind their oil production cuts this year – which is unlikely given the billions of dollars a day in extra revenue flowing to the group and ‘friends’ like Russia.

The IEA estimates an oil output increase of 4.4 million barrels a day from OPEC+, as the cartel and its allies are known, and 1.8 million barrels per day from non-OPEC countries this year.

The US Energy Information Administration reported a modest inventory build of 500,000 barrels for the week to January 14 compared to the 4.6 million barrel the week before.

US crude futures traded over $US87 per barrel earlier early last week, their highest since October 2014, and rose for a fifth week in a row for the first time since October.

With oil prices up about 13% so far this year after soaring 55% in 2021, a growing number of energy firms said they plan to boost spending for a second year in a row in 2022 after cutting drilling and completion expenditures in 2019 and 2020.

Australian energy firms, Santos and Woodside both revealed higher capex spending for 2021 in the final production reports for the year last week.

Despite that upbeat view, American energy firms this week cut oil rigs for the first time in 13 weeks after crude prices fell for six weeks in a row from late October-early December.

The combined US oil and gas rig count rose by three to 604 in the week to January 21, the highest since April 2020, energy services firm Baker Hughes Co said in its weekly report on Friday but the number of oil directed rigs fell by one to 494. The number of gas rigs rose by 4.


Gold prices rose 0.8% over the week to settle at $US1,831.80 and ended after hours trading at $US1,836.10 on Comex in New York.

Comex silver settled at $US24.32 an ounce and then edged higher in after-hours trading to $US24.345 an ounce. Silver was up nearly 6% at its settlement price and 6% at its close.

Comex copper ended up 2% at $US4.5195 a pound after settling at $US52.40.

Meanwhile 62% Fe fines imported into Northern China ended at $US137.36 a tonne, up 2.3% compared to Thursday’s closing and up more than $US10 a tonne over the week.


About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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