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Commodity Gains: Gold, Oil & Profitable Market Moves!

Commodity markets are a fantastic way to diversify your portfolio.

March 2024 is proving to be extremely volatile for commodity traders.

In this article, Finxo Cap takes a look at the gold, oil, and grain markets.

Commodity markets: Gold prices dip

Gold prices dipped again on March 12, with the price of the metal falling more than 1% at points during the day, on the back of a robust US inflation report that dampened prospects for the Federal Reserve to cut interest rates this year.

Spot gold fell 0.9% to $2,161.39 an ounce, after touching its peak for the year at $2,194.99 on March 9.

US gold futures fell 1% to $2,167.10. The CPI jumped 0.4% on a month-on-month basis in February, up from a 0.1% rise the month prior and the largest one-month increase since October 2023.

On an annual basis, the CPI rose 3.2%, above forecasts of 3.1%, indicating inflation remains entrenched.

Commodity markets: Gold Bulls Looking For Opportunities

Gold bulls will be looking for ways in which the commodity can become more alluring again.

The Federal Reserve policy committee is set for March 20. Lower rates are one of the attractions of owning gold because they reduce the cost of holding an asset that does not pay any interest.

Looking further ahead, short-term predictions suggest that gold prices will likely consolidate and settle at around $2,100, possibly reaching more than $2,200 by the second quarter.

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Commodity markets: Platinum and Silver

Spot platinum also fell by 1.4% to $919.65 per ounce, while palladium rose slightly by 0.1% to $1,030.75.

UBS is predicting palladium will remain oversupplied over the next two years due to weakening demand for autocatalysts.

Silver also fell by 1.1% to $24.15.

South Africa’s Rand falls

The rand fell against the US dollar on Tuesday, as the greenback appreciated following better-than-anticipated US inflation data.

The rand traded at 18.7125 to the dollar around 1518 GMT on Tuesday, down about 0.16% from yesterday’s close.

The greenback climbed on the dollar index, up 0.26%, after the US inflation rate for May increased more than expected, tempering some hopes of a rate cut by the Federal Reserve in June.

The rand is like most other emerging market currencies.

In addition to domestic economic indicators, the Rand is affected by international factors such as US fiscal policy.

Commodity: gold mining in SA

In March, South Africa is waiting for significant economic data points, including gold, mining, and manufacturing production for January, to be released on March 14.

The Johannesburg Stock Exchange’s Top-40 index rose a scant 0.08 % to close.

South Africa’s key government bond, 2030, was weaker when Wall Street closed, its yield was up 6 basis points to 10.165%.

Commodity markets – Oil prices remain depressed

Oil prices edged higher, with negative signs of US economic health weighing against daily peaks from OPEC’s forecast of demand growth and geopolitical volatility.

Brent crude advanced by 21 cents to $82.42 a barrel for Mary, while the contract for April US West Texas Intermediate (WTI) crude gained 31 cents to $78.24.

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Commodity markets – US CPI hits sectors

The US Department of Labor’s Bureau of Labor Statistics reported that a rise in February consumer prices.

This is on the back of spiraling fuel and shelter prices, with inflation still showing a little heat under the hood.

Commodity markets – OPEC under fire

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OPEC maintained its forecast for solid growth in demand for oil through 2024 and beyond.

The organization boosted its expectations of economic growth in 2024, which could leave room for more improvement.

The US Energy Information Administration (EIA) will publish its monthly report later in March, followed by the Paris-based International Energy Agency.

Commodity markets – China demand to drop?

The largest oil consumer, China, reported signs that demand might be softening, even as imports of crude rose in early 2023 compared with a year earlier.

In nearby Russia, the second largest oil exporter, explosions at energy installations targeted by a Ukrainian attack triggered a fire at Lukoil’s NORSI refinery.

Commodity markets: Oil demand to rise in 2025

OPEC reiterated forecasts for big increases in world oil demand in 2024 and 2025 and upped its forecasts for economic growth this year with an eye to more upside.

The organization said in its monthly report oil demand will rise by 2.25 million barrels per day (bpd) in 2024 and by 1.85 million bpd in 2025, in line with earlier forecasts.

OPEC’s new economic growth forecast through 2024, already exceeding the IEA forecast for 2023, is the most divergent view of the demand outlook since at least 2020.

Commodity markets: Oil forecast higher

A dynamic growth of economic activity is expected to gain traction toward the second half of 2023 and is projected to be sustained through the first half of 2024.

As a result, the growth projection of the global economy in 2024 has been revised upward by 0.1 percentage points since last February’s MOMR, in line with the assumed stronger momentum coming from the start of the year.

The dynamic growth projected over the forecast horizon increases the prospects of an upward revision to global economic growth potential, noting that the world economy has yet to revert to its pre-pandemic trend.

OPEC began forecasting ‘non-covid effects’ in June 2023.

Commodity markets: Healthy growth in China, USA

It also highlighted that healthy growth potential in the major economies of India, China, and the United States could exceed current forecasts.

Meanwhile, fuel demand growth since July, when the IEA first issued its 2024 forecast, has remained unchanged, even as oil prices are on the world’s strongest market.

On March 11, Opec raised the price a barrel of its crude by $1.10 to $109.20.

Several Opec and non-Opec countries, including Saudi Arabia, the United Arab Emirates, Kuwait and Angola, have seen prices rally to multi-year highs.

All have decided to offer less oil to the market in February, evidence of a market beginning to tip towards shortages.

“Strong fundamentals continue to support oil demand, while geopolitical risks play an additional role in market balances,” Opec said in releasing its official oil demand statistics for January.

Commodity markets: World Economy to Grow in 2024

OPEC now expects the world economy to grow 2.8% this year, and to remain on a steady path in 2024 with another healthy 2.9% expansion.

It also forecasts that overall inflation will diminish further this year.

Adding to these sunny projections was the organization’s suggestion that domestic and geopolitical events will be unlikely to derail the growth path.

Their estimate for growth in oil demand this year is nearly twice as high as the IEA’s figure of 1.22 million bpd.

So for how long will oil remain humankind’s primary source of energy? Well, that depends on who you ask.

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Despite a consensus that growth in demand for oil will falter sooner rather than later, OPEC and the IEA continue to fight openly over the fate of the fossil fuel industry.

The gap between OPEC’s and IEA’s estimates of demand growth in February was the largest for this time of year since 2008.

Commodity markets: Surge in oil stocks

A surge in world oil supplies following stock drawdowns has scrambled OPEC’s delicate calculus to cut production.

Since late 2022, OPEC and its allies have frequently announced new cuts in production allocations.

On March 2, the alliance extended those curbs through the second quarter, after the 100,000- barrels -per-day reduction planned for the first quarter.

Despite the latest OPEC+ supply cut announced in January, total OPEC oil production still rose by 203,000 bpd to 26.57 million bpd in February, with Nigeria and Libya leading the way, according to Reuters.

The most recent skirmish centered on the IEA’s World Energy Outlook 2014 report, released in November last year.

OPEC’s chief economist, Ninfa Abdullah, called it a ‘disturbing document’ because she didn’t like its projections for global oil demand growth.

Abdullah said it painted a ‘grim’ picture of oil’s future, which is strange because the report predicted that oil would continue to grow throughout the next 20 years.

The non-OPEC ministerial meeting should be surprising because disagreement in the organisation tends to be more subtle.

Commodity markets: Grain price war

Ukraine in particular has made a stunning recovery of grain exports, exceeding pre-war levels despite Russia’s two-plus-year-long war by shipment (in tonnes) over the past few months.

South African commodity grain exports for this period have been the lowest in decades.

The surplus in Black Sea region grain shipments, resulting from the recent increase in Ukrainian exports, appears to have been enough to offset all the increased exports missing from other leading suppliers.

US grain supplies are up in 2024.

Commodity markets: Grain shipments down

Looking at the year-to-date global grain shipments, the difference between 2023 and 2024’s exports is a deficit of 637.6 million bushels in grain shipments.

For the fifth straight month, the USDA has increased its estimates for Ukraine’s wheat exports for the 2023-24 season.

The increased estimates are a result of better-than-expected shipping, not higher harvest sizes.

Despite Russian bombings of Ukrainian port infrastructure, Ukraine has kept its Black Sea export route open since August 2023. After Russia withdrew from the original deal in July, Kyiv is reporting export record volumes for all goods in February.

Commodity Markets: Grain Trading Opportunities

Since August, the USDA has increased its estimates of exports for the agricultural year 2022/23 from the Ukrainian corn and wheat crops by 35% (10.5 million metric tons), even though production has increased only 9 % (4.4 million tons).

That implied demand-supply balance means that Ukraine’s export mechanism can now get back to normal.

Exports represent a smaller share of output in the UK, while export-to-output ratios for Ukraine tend to be larger than average given that one-third of that country’s grain output is exported.

Commodity markets: Ukraine exports at pre-war averages

Ukraine’s export ratios plummeted during 2021-22 but the situation has improved dramatically now.

At current projections for the 2023-24 marketing year, export ratios are close to their pre-war averages.

Russia is on track to export as much as 42% of its wheat crop (a post-Soviet era record), while the US faces a declining share in global wheat markets.

Since 2011/12, Black Sea grain exports have also more than doubled what was expected two marketing years in a row, adding up to an additional 53 million metric tons (or 2.5 years of US wheat exports).

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The Soviet experience demonstrates the historical role of grain and agricultural exports to Ukraine – they account for at least 17% of the country’s export value.

Commodity markets: Japan’s push for zero-emission energy

With an eye to a zero-emission economy and greater energy security, Japan has ambitious plans to become a world-leading force in offshore wind.

While Japanese businesses own offshore wind farms in countries that include Taiwan, Belgium, and Britain, Japan has yet to develop large-scale farms at home.

The Japanese government recently approved a draft amendment that would enable offshore wind installations in Japan’s exclusive economic zones (EEZ), a key step in the country’s commitment to carbon neutrality by 2050.

By 2022, its total capacity reached just 136MW compared to 4GW in Britain and 31GW in China.

Japan’s interim goal is to reach 10 GW of offshore wind capacity by 2030, with a longer-range plan to build up to 45 GW by 2040.

The goal is to increase the share of renewables in Japan’s electricity mix to 36% to 38% by the end of the decade, up from about 20 % now.

In November 2021, Noshiro port (84 MW) up north, and Akita port (55 MW) further south were the first major commercial offshore wind operations in Japan, driven by a consortium led by Marubeni.

Commodity markets:

Back in March, the first major auction round resulted in a Mitsubishi-led consortium winning all three offshore wind farm projects in Akita and Chiba prefectures. With a combined capacity of 1.7 GW and operations starting between 2028 and 2030.

The projects will consist of bottom-fixed structures with 134 wind turbines manufactured by General Electric to be assembled and serviced by Toshiba.

The auction attracted big foreign companies, such as the Danish firm Orsted and the German firm RWE to the Japanese market.

Commodity markets: Major auctions, bigger opportunities

The second round of auctions, for a total of 1.8 GW, went to RWE (along with a Japanese consortium) for a 684 MW farm, and to three consortiums, most with other local companies, for the remainder.

All the projects, set to go into service between June 2028 and August 2029 using turbines from Vestas and General Electric, would be ‘bottom-fixed’.

Another auction for a 356 MW farm in Akita prefecture is slated to be held in March 2024.

Japan has also announced Floating Offshore Wind projects with a consortium led by Toda Corp selected in 2021 to develop the 16.8 MW Goto project in Nagasaki.

This project, however, has been delayed due to structural defects.

The legislative amendment will pave the way for demonstration projects of scale within the exclusive economic zone (EEZ) to support several gigawatts of capacity.

To support this expansion, the Ministry of Economy, Trade, and Industry (METI) recommends attaining a 60% domestic share by 2040.

Several global renewable energy majors have set up shop in Japan.

GE Renewable Energy signed an agreement in 2021 with Toshiba Energy Systems Solutions to create offshore wind turbine parts near Tokyo for mass production in 2026 to produce 1 GW annually.

GE has been selected as the exclusive nacelle supplier for the first auction round, which offers great promise as the country prepares to establish offshore wind energy production and aims to reach a cumulative installed capacity of 45 GW by 2040.