Crude Oil Brent crude oil prices were volatile in recent weeks, with prices hitting a nearly four-month high on 16 September before fa...

Commodities Forecast October 2019

Crude OilBrent crude oil prices were volatile in recent weeks, with prices hitting a nearly four-month high on 16 September before falling sharply afterwards. On 4 October, oil prices traded at USD 59.1 per barrel, which was 2.6% lower than on the same day last month. While the benchmark price for global crude oil was 31.3% lower than on the same day last year, it was up 16.9% on a year-to-date basis. Oil prices surged at the start of September, reflecting news that China and the United States would resume trade talks. The upward trend was reinforced by an alleged attack by Iran-backed Yemeni Houthis on Saudi oil facilities on 14 September. The drone attack shut down more than half of Saudi oil production, which represented the worst sudden disruption to supply in history and prompted Brent crude oil prices to record the biggest jump on record in over three decades. In the following days, oil prices receded as the possibility of a retaliatory attack against Iran by Saudi Arabia and the United States diminished and oil production gradually recovered in the Kingdom. Later in the month and in October, weak economic data among most of the world’s key economies, which could hit demand for the black gold, weighed on prices.

West Texas Intermediate (WTI) crude oil prices declined slightly in recent weeks, weighed on by weak global growth and rising inventories in the United States. WTI crude oil prices traded at USD 52.8 per barrel on 4 October, which was down 6.0% from the same day last month. While the price was down 29.0% from the same day last year, it was 17.0% higher on a year-to-date basis. WTI crude oil prices declined in recent weeks, mostly reflecting weak economic data in the United States as the impact of bold fiscal stimulus implemented in previous years started to fade and trade tensions against China began to erode business confidence. Moreover, the labor market appears to have peaked, which bodes poorly for private consumption going forward. As a result, inventories are building up and, according to EIA data for the week ending 27 September, U.S. crude supplies rose for a third week in a row, by 3.1 million barrels. Low demand and severe financial stress in the shale industry is forcing U.S. energy firms to reduce the number of oil rigs and they are now at levels not seen since May 2017. Fewer oil rigs could lead to a sizeable reduction in oil production in the United States next year.

Natural Gas
Natural gas prices tapered over the prior month on higher than-expected build-ups in storage levels due to weaker demand for electricity and cooling. On 4 October, the Henry Hub Natural Gas price was USD 2.35 per one million British thermal units (MMBtu), which was 3.7% lower than on the same day in the previous month. Moreover, the price was down 20.1% on a year-to-date basis and was 25.8% lower than on the corresponding day in 2018. Prices decreased in mid-September as storage levels jumped to the upper limit of market analysts’ forecast range for the week ending 13 September. Production levels were virtually stable but a drop in cooling demand along the U.S. East Coast and in Texas bolstered natural gas inventories. This trend continued in the second half of September as underground storage inventories increased significantly in the weeks ending 20 and 27 September. Pleasant weather conditions, which led to softer demand for natural gas, coupled with ample production levels, drove the continued build-up in storage. Prices are seen rising going forward, supported by a global shift away from coal towards gas, which is a relatively cleaner non-renewable energy. However, strong U.S. supply due to the burgeoning shale sector could temper any increase.

Coking & Thermal Coal
Coking Coal - Prices for coking coal from Australia fell through mid September, and subsequently remained at a three-year low. On 4 October, Australian coking coal traded at USD 137 per metric ton, which was down 12.3% from the same day in August. Moreover, the price was 36.1% lower on a year-to date basis and was down 35.7% from the same day last year. Excess supply and weaker European demand have weighed on prices, offsetting strong Chinese demand despite weakness in its manufacturing sector. Manufacturing PMI data showed that operating conditions remained under pressure in China through September, while industrial output expanded at the slowest pace in three years in August. Nevertheless, Chinese import growth of coking coal hit an all-time high in August, which will likely prompt the authorities to respond with stricter import rules. Prices should rise going forward on the back of demand from rapidly growing emerging markets like India. However, the deteriorating global outlook remains a risk. Our panelists expect prices to average USD 156 per metric ton in Q4 2019 and USD 162 per metric ton in Q4 2020.

Thermal Coal
Prices were volatile in recent weeks as a short-lived spike at the end of September, due to a pick-up in European demand amid fears of disruptions to Russian gas imports and uncertainty over France’s nuclear power generation outlook, but prices retreated sharply in early October as concerns dissipated. On 4 October, the commodity traded at USD 65.2 per metric ton, which was down 1.7% from the same day last month. Moreover, the price was 36.1% lower on a year-to date basis and was down 42.7% from the same day last year. China’s manufacturing sector—which accounts for the substantial portion of power consumption in the country— remained under pressure in August–September, according to manufacturing PMI data. Despite this, trade data showed strong demand for thermal coal, which is largely used for power generation. Chinese imports of thermal coal rose robustly in August and early data for September hints at the continuation of this trend, despite government efforts to reduce pollution. Therefore the Chinese government will likely ramp up its environmental efforts and tighten import restrictions, which would weigh on prices. Japanese demand, on the other hand, dropped in August amid weakness from steel producers. Compounding demand woes, the Indian government recently announced plans to reduce thermal coal imports, as India moves towards cleaner energy sources. Prices are projected to rise ahead on tight supply as large mining corporations have lost their appetite to expand thermal coal operation amid a global push towards less-polluting energy sources. However, reduced price competitiveness of the commodity and slowing global economic momentum will cap gains. The panel projects that the price of thermal coal will average USD 70.5 per metric ton in Q4 2019 and USD 69.4 per metric ton in Q4 2020.

GasoilEuropean low sulfur gasoil prices are relatively unchanged month-on-month. On 4 October, gasoil traded at USD 562 per metric ton, which was 0.7% lower than on the same day last month. The price was up 15.0% on a year-to-date basis, but was 23.0% lower than on the same day last year. Gasoil prices spiked in mid-September following the attack on Saudi oil facilities, along with prices for oil and its other derivatives, due to the possibility that this could significantly impact supply. However, gasoil prices tailed off thereafter, likely linked to concerns over the health of the global economy and easing worries over the prospects for Saudi oil production. Gasoil prices are seen losing some steam next year, despite the International Maritime Organization’s (IMO) emissions regulations on high-sulfur fuels that come into effect in 2020. The EU’s shift away from diesel vehicles is likely to continue, dampening prices. FocusEconomics panelists see prices averaging USD 586 per metric ton in Q4 2019 and USD 537 per metric ton in Q4 2020.

GasGasoline prices have risen sharply over the last month on supply issues. On 4 October, reformulated blendstock for oxygenate blending (RBOB) gasoline traded at USD 2.67 per gallon, which was up 25.9% from the same day last month. The price was 71.4% higher on a year-to-date basis and was up 13.4% from the same day last year. Gasoline prices have increased over the last month, supported by the lagged impact of the attack on Saudi oil facilities in mid-September, which temporarily boosted oil prices and thus fed through to higher gasoline prices. Moreover, supply in California has been tight in recent weeks, due to unplanned maintenance work at several refineries. This has put further upward pressure on prices even as the impact of the Saudi attack began to ease from late September. Prices will likely retreat moving forward as Californian refineries come back online and U.S. oil production increases. Developments in the U.S.-China trade dispute will remain an important price determinant. FocusEconomics panelists expect gasoline to trade at an average of USD 1.62 per gallon in Q4 2019 and USD 1.66 per gallon again in Q4 2020.

The price of uranium rose slightly in recent weeks, trading at USD 25.7 per pound on 4 October. The price was 1.4% higher than on the same day last month. However, the price was down 10.0% on a year-to-date basis and was 6.4% lower than on the same day last year. Prices were partially supported by opposition to exploratory uranium mining in the Nallamala Forest in eastern India, which is causing problems for the mining industry there and highlights the challenge the domestic industry faces in raising uranium production. On the other hand, calls in the U.S. by Republican lawmakers to ease restrictions on uranium mining in federal lands likely had the opposite effect on prices. Growing global demand for nuclear power and lower output from Kazakhstan and Canada, the world’s leading producers, should support uranium prices in the coming months. Our panelists forecast that prices will average USD 26.5 per pound in Q4 2019 and USD 32.1 per pound in Q4 2020.

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