Analys
A moment in markets – The evolving investment narrative surrounding metals


Investors are certainly not oblivious when it comes to expectations of a post-pandemic global economic recovery and the budding chatter about a new commodity supercycle. But the investment narrative for metals is evolving. Due to their growing use in emerging technologies, metals are increasingly being seen as thematic investments.
Figure 1: Aluminium prices have outpaced the industrial metals basket recently

For the cyclical upswing
While growing demand from technological megatrends – such as the energy transition – is lengthening the perceived shelf life of metals as investments, cyclical tailwinds do not hurt. In our commodities outlook for 2021, we highlighted four key themes expected to influence commodity prices this year. They include reflation, infrastructure spend driving a structural recovery, an increased focus on the environment, and weather patterns affecting agricultural commodities. The first three have a direct bearing on the outlook for metals.
Reflation relates to a combination of improving industrial demand and accommodative fiscal and monetary conditions. Broad baskets of commodities are favoured within this theme. The pandemic may, however, even encourage governments to start plugging the $15 trillion infrastructure gap to induce economic growth. This can add impetus to the industrial metals sector. Additional support may come from targeted climate focused investment – an example of which is Joe Biden’s $2 trillion plan to build a sustainable clean energy future. While these themes may unfold over the next few years, they are expected to gain more traction in the coming months.
For the megatrends
Industrial metals are the raw materials for many tech related megatrends. There is a growing recognition among investors that equities are not the only way to access these themes. For example, copper’s use in passenger electric vehicles is forecast to rise from less than 0.5 million tonnes (Mt) in 2020 to over 2.5Mt by 2035. The need to build lighter vehicles is also expected to draw higher quantities of metals like aluminium. Similarly, higher loadings of nickel are likely to be used in batteries to power these vehicles. Batteries are expected to account for 30% of nickel demand by 2040 – up from around 5% today. The recent strength in these metals appears to be symptomatic of the growing interest in electric vehicles globally.
Precious metals with industrial applications are relevant to the discussion too. Silver’s use in battery operated electric vehicles ranges between 25-50 grams (g) per vehicle compared to 25-28g for internal combustion engine vehicles. Silver’s automotive demand may rise to 88 million ounces (Moz) by 2025 compared to 51Moz in 2020 as electric vehicles proliferate on the roads. Similarly, if fuel cells are adopted by automakers as a viable source of energy for cars, demand for platinum may rise meaningfully given the metal is used both as a catalyst inside the fuel cell as well as in the production of hydrogen.
Ways to access metals
Investors have options. Exchange traded products typically offer an exposure to front month industrial metals futures. When commodity prices rally sharply, front month exposures generally appear favourable. Enhanced approaches seek instead to maximise the positive roll yield when futures curves are in backwardation and mimimise negative roll yields when futures curves are in contango. The benefits of such approaches are typically seen over longer periods.
When it comes to precious metals, however, many investors prefer physical exposures as precious metals are also perceived as stores of wealth – or providing greater protection against equity and bond market downturns. Silver held in exchange traded products (ETP) currently stands close to record highs of just under 1 billion troy ounces compared to around 0.6 billion troy ounces a year ago. The same is true for ETP holdings of platinum which stand around 3.9 million ounces compared to around 3.5 million ounces a year ago.
The metals mentioned here do not constitute an exhaustive list. They do, however, offer an illustration of how metals are not just for tactical investors interested in the cyclical recovery, but also appeal to long term investors keen to access growing themes in differentiated ways.
By: Mobeen Tahir, Associate Director, Research, WisdomTree
Analys
Crude stocks fall again – diesel tightness persists

U.S. commercial crude inventories posted another draw last week, falling by 2.4 million barrels to 418.3 million barrels, according to the latest DOE report. Inventories are now 6% below the five-year seasonal average, underlining a persistently tight supply picture as we move into the post-peak demand season.

While the draw was smaller than last week’s 6 million barrel decline, the trend remains consistent with seasonal patterns. Current inventories are still well below the 2015–2022 average of around 449 million barrels.
Gasoline inventories dropped by 1.2 million barrels and are now close to the five-year average. The breakdown showed a modest increase in finished gasoline offset by a decline in blending components – hinting at steady end-user demand.
Diesel inventories saw yet another sharp move, falling by 1.8 million barrels. Stocks are now 15% below the five-year average, pointing to sustained tightness in middle distillates. In fact, diesel remains the most undersupplied segment, with current inventory levels at the very low end of the historical range (see page 3 attached).
Total commercial petroleum inventories – including crude and products but excluding the SPR – fell by 4.4 million barrels on the week, bringing total inventories to approximately 1,259 million barrels. Despite rising refinery utilization at 94.6%, the broader inventory complex remains structurally tight.
On the demand side, the DOE’s ‘products supplied’ metric – a proxy for implied consumption – stayed strong. Total product demand averaged 21.2 million barrels per day over the last four weeks, up 2.5% YoY. Diesel and jet fuel were the standouts, up 7.7% and 1.7%, respectively, while gasoline demand softened slightly, down 1.1% YoY. The figures reflect a still-solid late-summer demand environment, particularly in industrial and freight-related sectors.


Analys
Increasing risk that OPEC+ will unwind the last 1.65 mb/d of cuts when they meet on 7 September

Pushed higher by falling US inventories and positive Jackson Hall signals. Brent crude traded up 2.9% last week to a close of $67.73/b. It traded between $65.3/b and $68.0/b with the low early in the week and the high on Friday. US oil inventory draws together with positive signals from Powel at Jackson Hall signaling that rate cuts are highly likely helped to drive both oil and equities higher.

Ticking higher for a fourth day in a row. Bank holiday in the UK calls for muted European session. Brent crude is inching 0.2% higher this morning to $67.9/b which if it holds will be the fourth trading day in a row with gains. Price action in the European session will likely be quite muted due to bank holiday in the UK today.
OPEC+ is lifting production but we keep waiting for the surplus to show up. The rapid unwinding of voluntary cuts by OPEC+ has placed the market in a waiting position. Waiting for the surplus to emerge and materialize. Waiting for OECD stocks to rise rapidly and visibly. Waiting for US crude and product stocks to rise. Waiting for crude oil forward curves to bend into proper contango. Waiting for increasing supply of medium sour crude from OPEC+ to push sour cracks lower and to push Mid-East sour crudes to increasing discounts to light sweet Brent crude. In anticipation of this the market has traded Brent and WTI crude benchmarks up to $10/b lower than what solely looking at present OECD inventories, US inventories and front-end backwardation would have warranted.
Quite a few pockets of strength. Dubai sour crude is trading at a premium to Brent crude! The front-end of the crude oil curves are still in backwardation. High sulfur fuel oil in ARA has weakened from parity with Brent crude in May, but is still only trading at a discount of $5.6/b to Brent versus a more normal discount of $10/b. ARA middle distillates are trading at a premium of $25/b versus Brent crude versus a more normal $15-20/b. US crude stocks are at the lowest seasonal level since 2018. And lastly, the Dubai sour crude marker is trading a premium to Brent crude (light sweet crude in Europe) as highlighted by Bloomberg this morning. Dubai is normally at a discount to Brent. With more medium sour crude from OPEC+ in general and the Middle East specifically, the widespread and natural expectation has been that Dubai should trade at an increasing discount to Brent. the opposite has happened. Dubai traded at a discount of $2.3/b to Brent in early June. Dubai has since then been on a steady strengthening path versus Brent crude and Dubai is today trading at a premium of $1.3/b. Quite unusual in general but especially so now that OPEC+ is supposed to produce more.
This makes the upcoming OPEC+ meeting on 7 September even more of a thrill. At stake is the next and last layer of 1.65 mb/d of voluntary cuts to unwind. The market described above shows pockets of strength blinking here and there. This clearly increases the chance that OPEC+ decides to unwind the remaining 1.65 mb/d of voluntary cuts when they meet on 7 September to discuss production in October. Though maybe they split it over two or three months of unwind. After that the group can start again with a clean slate and discuss OPEC+ wide cuts rather than voluntary cuts by a sub-group. That paves the way for OPEC+ wide cuts into Q1-26 where a large surplus is projected unless the group kicks in with cuts.
The Dubai medium sour crude oil marker usually trades at a discount to Brent crude. More oil from the Middle East as they unwind cuts should make that discount to Brent crude even more pronounced. Dubai has instead traded steadily stronger versus Brent since late May.

The Brent crude oil forward curve (latest in white) keeps stuck in backwardation at the front end of the curve. I.e. it is still a tight crude oil market at present. The smile-effect is the market anticipation of surplus down the road.

Analys
Brent edges higher as India–Russia oil trade draws U.S. ire and Powell takes the stage at Jackson Hole

Best price since early August. Brent crude gained 1.2% yesterday to settle at USD 67.67/b, the highest close since early August and the second day of gains. Prices traded to an intraday low of USD 66.74/b before closing up on the day. This morning Brent is ticking slightly higher at USD 67.76/b as the market steadies ahead of Fed Chair Jerome Powell’s Jackson Hole speech later today.

No Russia/Ukraine peace in sight and India getting heat from US over imports of Russian oil. Yesterday’s price action was driven by renewed geopolitical tension and steady underlying demand. Stalled ceasefire talks between Russia and Ukraine helped maintain a modest risk premium, while the spotlight turned to India’s continued imports of Russian crude. Trump sharply criticized New Delhi’s purchases, threatening higher tariffs and possible sanctions. His administration has already announced tariff hikes on Indian goods from 25% to 50% later this month. India has pushed back, defending its right to diversify crude sourcing and highlighting that it also buys oil from the U.S. Moscow meanwhile reaffirmed its commitment to supply India, deepening the impression that global energy flows are becoming increasingly politicized.
Holding steady this morning awaiting Powell’s address at Jackson Hall. This morning the main market focus is Powell’s address at Jackson Hole. It is set to be the key event for markets today, with traders parsing every word for signals on the Fed’s policy path. A September rate cut is still the base case but the odds have slipped from almost certainty earlier this month to around three-quarters. Sticky inflation data have tempered expectations, raising the stakes for Powell to strike the right balance between growth concerns and inflation risks. His tone will shape global risk sentiment into the weekend and will be closely watched for implications on the oil demand outlook.
For now, oil is holding steady with geopolitical frictions lending support and macro uncertainty keeping gains in check.
Oil market is starting to think and worry about next OPEC+ meeting on 7 September. While still a good two weeks to go, the next OPEC+ meeting on 7 September will be crucial for the oil market. After approving hefty production hikes in August and September, the question is now whether the group will also unwind the remaining 1.65 million bpd of voluntary cuts. Thereby completing the full phase-out of voluntary reductions well ahead of schedule. The decision will test OPEC+’s balancing act between volume-driven influence and price stability. The gathering on 7 September may give the clearest signal yet of whether the group will pause, pivot, or press ahead.
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