Commodity Roundup: Oil, gold fall ahead of FOMC verdict; Morgan Stanley ups Brent outlook

March 19, 2024

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Oil prices fell in cautious trading on Tuesday ahead of the Federal Reserve’s decision on U.S. interest rates, and expectation of higher crude oil exports from Russia amid the ongoing drone attacks on refineries.

Crude oil futures rose in the previous session to settle at their highest since late October, buoyed by lower crude exports from Saudi Arabia and Iraq, and signs of stronger demand in China and the United States. WTI crude futures held above $82 per barrel on Tuesday, hovering near its highest levels since early November.

However, increased Russian exports following Ukrainian attacks on the country’s oil infrastructure put downward pressure on prices. The country will increase oil exports through its western ports in March by almost 200,000 barrels per day (bpd) against a monthly plan for 2.15 million bpd.

Meanwhile, Morgan Stanley raised its Brent oil price forecasts by $10 per barrel to $90 for the third-quarter of 2024, and hiked its first-quarter Brent price outlook to $85 per barrel from $82.5, second-quarter forecast to $87.5 from $82.5 and for the fourth quarter it sees prices at $85 versus $80 previously.

UBS said, there has been a substantial increase in open interest (the sum of long and short positions) in Brent, reaching the highest level since November 2021. The increase in the U.S. oil benchmark WTI has been more moderate. Several factors have supported the return of financial investors’ interest in crude oil, the bank says. “With Brent expected to trade in an $80–90/bbl range this year, we continue to advise investors with a high risk tolerance to sell Brent’s downside price risks or to add exposure to longer-dated Brent oil contracts.”

Spot gold prices (XAUUSD:CUR) were also trading lower against a stronger dollar, as markets positioned for a host of central bank meetings this week, and FOMC Chairman Jerome Powell’s speech in particular. The dollar was backed by investors adjusting their expectations of the pace and scale of Fed cuts this year. Markets widely anticipate no change in interest rates at the end of the Fed’s two-day policy meeting on Wednesday, but are pricing in a 53% chance of a rate cut in June. While gold is considered a hedge against inflation, rising interest rates dull non-yielding bullion’s appeal. Spot gold (XAUUSD:CUR) was down -0.31% to $2,153.21 an ounce by 6 am ET.

Elsewhere, among agriculture commodities, soybean and wheat were trading lower, while cocoa futures gained. The latest data from Ukraine’s Agriculture Ministry shows that grain exports so far in the 2023/24 season dropped to 32.4mt as of 18 March, a decline of 9.4% YoY, ING reported. This includes wheat exports of 12.9mt, up 5% YoY, and corn shipments of 17.4mt, down 17% YoY.

Stocks to watch: Profire Energy (PFIE) +8%, Permian Basin Royalty Trust (PBT) +7%, YPF ADR (YPF) +7%, Hallador Energy Co (HNRG) -10%, Cross Timbers Royalty Trust (CRT) -9%, Lithium Americas (NewCo) (LAC) -11%, Sibanye Stillwater Limited ADR (SBSW) -8%. Caledonia Mining Corporation Plc (CMCL) -7%.