Commodity Update: Oil Prices Steady, Gold at Low, Metals Dip Amid Economic Outlook

Commodity Capsule: On Wednesday, oil prices remained constrained within a defined trading range, influenced by a strong US dollar and reports of an unexpected increase in crude stocks. As investor expectations for the Federal Reserve to delay rate cuts grew, concerns arose over potential impacts on economic growth and oil demand.

Brent crude oil futures managed to maintain their position at $82.70 per barrel, while US West Texas Intermediate (WTI) crude futures were close to $78 per barrel. However, the market absorbed the news that US crude inventories had spiked by 8.52 million barrels in the week ending February 9, according to the American Petroleum Institute. This significant rise surpassed the forecasted 2.6 million barrel increase, ahead of the official data release from the US Energy Information Administration on Wednesday.

The strength in the dollar index, having reached a three-month high above the 104.60 level, also contributed to the pressure on commodities. As the stronger dollar generally makes oil more expensive for holders of other currencies, its rise can have a cooling effect on oil prices.

Non-Ferrous Metals Face Downward Pressure

On the metals front, most non-ferrous commodities experienced a decline, dragged down by the soaring US dollar. This shift was exacerbated by US inflation data, which suggested that rate cuts by the Federal Reserve might not be as imminent as previously thought. As a result, copper prices on the London Metal Exchange slipped under $8,200 per metric ton.

The high inflation numbers have caused traders to reassess their expectations for the Fed's monetary policy direction. Now, the Federal funds futures reflect no rate cut in March and a reduced probability of relaxation in May. This recalibration follows the release of data indicating a 3.1% year-on-year rise in US consumer prices during January, exceeding the 2.9% increase forecasted.

This downturn in copper is attributed partly to concerns surrounding China’s manufacturing demand, particularly from its property sector. With China celebrating the Lunar New Year, activities within the market have subdued.

Gold Trades Near Two-Month Low

Gold prices remained near their two-month nadir, falling below the key $2,000-per-ounce level after the recent US inflation report. This data led traders to cut back on their expectations for aggressive rate cuts by the Federal Reserve. Consequently, global gold futures lost $30 in the overnight session, positioning near $2,000 per ounce for the first time since December 13.

The anticipation surrounding the Federal Reserve's interest rate policy has shifted significantly, with a cut now expected no earlier than June. This change in sentiment has resulted in traders adjusting their positions from previously anticipating four quarter-point rate cuts in 2024 to a more conservative forecast that aligns with the Federal Reserve's 'dot plot' from December.

In addition to these commodity-specific movements, the broader market context includes the US dollar index reaching a three-month high, and 10-year Treasury yields approaching its 2-1/2-month peak.

Commodities, Oil, Gold, Metals, Economy, Inflation, Dollar