Breaking News
Investing Pro 0
NEW! Get Actionable Insights with InvestingPro+ Try 7 Days Free

Commodities Week Ahead: New China Lockdowns Spook Oil; U.S. Jobs Data Awaited

By Investing.com (Barani Krishnan/Investing.com)CommoditiesMar 28, 2022 09:44
uk.investing.com/analysis/commodities-week-ahead-new-china-lockdowns-spook-oil-us-jobs-data-awaited-200514256
Commodities Week Ahead: New China Lockdowns Spook Oil; U.S. Jobs Data Awaited
By Investing.com (Barani Krishnan/Investing.com)   |  Mar 28, 2022 09:44
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
 
XAU/USD
-0.05%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
Gold
-0.34%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
LCO
+0.76%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
CL
+0.85%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
CHNA
+0.00%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 

China’s intensifying COVID-19 crackdown, which has led to a shuttering of its Shanghai financial hub, could hit oil demand and other key commodities through this week, despite positive forecasts for the US jobs report for March.

Oil Daily
Oil Daily

It could also be a volatile week across markets, with investors expecting US inflation data in the form of personal income and spending numbers on Thursday, a day before the jobs report.

J.P. Morgan (JPM), in a report before the weekend, cited falling mobility numbers in Eurasia and California. The Wall Street bank said it was the clearest sign yet of the demand destruction in oil, which has mostly held about $100 a barrel since hitting nearly $140 after the Feb. 24 invasion of Ukraine.

In Monday’s Asian trading, London-traded Brent, the global benchmark for oil, was down $3.23, or 2.6%, at $114.14 per barrel by 12:00 PM in Singapore (12:00 AM in New York). Brent rose almost 12% last week for its biggest weekly gain since the invasion of Ukraine.

US crude’s West Texas Intermediate (WTI) was down $3.51, or 3.1%, at $110.39. WTI was up 8.8% last week.

Even gold, a hedge against political and economic troubles, was down in Monday’s Asian trade.

Gold Daily
Gold Daily

The most-active gold futures contract on New York’s COMEX, April, was down $10.10, or 0.5%, at $1,944.10 per ounce. The benchmark gold futures contract rose 1.3% last week.

In China, Shanghai announced on Sunday it would lock down the city in two stages to carry out COVID-19 testing over a nine-day period, after a new daily record there for asymptomatic infections, just as the world thought the pandemic was ending.

Shanghai has battled a new COVID-19 surge for nearly a month and Saturday was the highest daily number of cases there since the initial outbreak receded. The city recorded 2,631 new asymptomatic cases, which accounted for nearly 60% of China's total new asymptomatic cases that day, plus 47 new cases with symptoms.

Shanghai authorities have previously resisted a broad lockdown of the city to avoid destabilizing its economy and opted for a more bespoke "slicing and gridding" approach, which involves screening neighborhoods one by one.

Under the new order, public transport, including ride-hailing services, in these areas will be suspended when they are locked down, the city government said on its official WeChat account, adding that unapproved vehicles will not be allowed on the roads. It also said that all firms and factories will suspend manufacturing or work remotely during the lockdown, apart from those involved in offering public services or supplying food.

In a report, JPM said high crude prices were not the only demand-destructive force in commodities. The crisis in Ukraine, crippling financial sanctions in Russia, and the continued spread of the highly infectious Omicron variant in China have an even more direct impact on regional fuel consumption than high prices. It added that it expects China’s activity to contract in March and April, prompting a 1.1-percentage point cut to China’s 2Q GDP growth. 

As a result, the Wall Street bank cut 1.1 million barrels daily (mbd) off its 2Q22 demand forecasts, followed by about 0.5 mbd cuts to both 3Q and 4Q. On net, this trims 420,000 barrels daily on average from the bank's expectations for 2022 global oil demand as high prices, COVID restrictions, and geopolitical conflict drive demand destruction in Russia, China, India, and Europe.

While the US has been relatively isolated so far (despite the highest gasoline prices on record), JPM's demand revisions are heavily concentrated in Europe, which remains the epicenter of the geopolitical shock. Since the start of the Russia-Ukraine war, the bank's economists have downgraded the growth in the region by over 2-percentage points and have raised inflation forecasts by nearly 3-percentage points.

Consequently, JPM has cut its expectations for 2022 Eurasia oil demand by 270,000 barrels daily due to sanctions imposed on Russia. Eurasia demand for jet fuel will come in 130,000 barrels per day lower than the previous estimate, as roughly half of Russian civil aircraft will end up grounded as a result of airspace bans and shortages of parts. JPM also revised Europe oil demand down by 160,000 barrels daily on average for 2022 due to sensitivity to high prices and lower expectations for economic growth in the region

In California, vehicle miles traveled (VMT) has been tracking closely to 2018-19 levels since late last year. But it has deviated from the 2019 trend twice so far this year: once, as Omicron cases spread through the state, and again starting at the end of February as oil prices spiked.

The Biden administration, meanwhile, is considering another release of oil from the Strategic Petroleum Reserve (SPR) that could be bigger than the sale of 30 million barrels earlier this month, a source said. In total, the US and other members of the International Energy Agency (IEA) released about 60 million barrels from reserves.

"They definitely have the capacity to do significantly more—they (IEA members) have about 1.5 billion barrels of SPR inventories. By all means, this was the whole idea of an SPR, to provide relief in emergency times," said Natasha Kaneva, head of commodities research at J.P. Morgan.

Friday’s nonfarm payrolls report for March could help markets get a sense of whether the Federal Reserve’s roadmap for rate hikes is too aggressive or not aggressive enough.

Economists are expecting the US economy to have added 475,000 jobs, after 678,000 were created in February. Average hourly earnings are forecast to increase 5.5% year-on-year, while the unemployment rate is expected to tick down to 3.7%.

Indications of continued strength in the labor market would underline the case for a more aggressive pace of rate hikes as the Fed battles to curb soaring inflation.

The Fed hiked rates by a quarter percentage point on Mar. 16 but since then Fed Chair Jerome Powell has indicated that the central bank is prepared to raise rates in half-point increments if it is warranted, despite fears that this could trigger an economic downturn.

Ahead of the jobs report, the US government is set to release February figures on personal income and spending on Thursday. The report contains personal consumption expenditures data, a gauge of inflation closely watched by the Fed.

Economists are expecting the core PCE price index to rise 5.5% on an annual basis, staying well above the Fed’s 2% inflation target.

The economic calendar also features updates on consumer confidence, job openings, private sector hiring, jobless claims and the ISM manufacturing PMI.

In addition, New York Fed President John Williams, Philadelphia Fed head Patrick Harker, Atlanta Fed President Raphael Bostic and Richmond Fed President Thomas Barkin are to make appearances during the week.

Disclaimer: Barani Krishnan uses a range of views outside his own to bring diversity to his analysis of any market. For neutrality, he sometimes presents contrarian views and market variables. He does not hold positions in the commodities and securities he writes about.

Commodities Week Ahead: New China Lockdowns Spook Oil; U.S. Jobs Data Awaited
 

Related Articles

ING Economic and Financial Analysis
The Commodities Feed: FOMC Day By ING Economic and Financial Analysis - Sep 21, 2022

Price action across commodities is likely to be dictated by today's FOMC meeting. A 75 bps hike is likely priced in, but anything more aggressive could put further pressure on the...

Commodities Week Ahead: New China Lockdowns Spook Oil; U.S. Jobs Data Awaited

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (3)
Yogesh Acharya
Yogesh Acharya Mar 29, 2022 15:18
Saved. See Saved Items.
This comment has already been saved in your Saved Items
All commodity price will be up side in two week, because gold, silver are on 200 support level
Yogesh Acharya
Yogesh Acharya Mar 29, 2022 15:18
Saved. See Saved Items.
This comment has already been saved in your Saved Items
All commodity price will be up side in two week, because gold, silver are on 200 support level
Yogesh Acharya
Yogesh Acharya Mar 29, 2022 15:17
Saved. See Saved Items.
This comment has already been saved in your Saved Items
all commodity price will be up side in two week, because gold, silver are on 200 support level
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email