The world is watching as the Israel-Hamas war intensifies, threatening to disrupt the global economy as well as flows of commodities, including oil. Elsewhere, aluminum producer Alcoa Corp. is set to report quarterly earnings on Wednesday after the close of trading and soybeans look to build on last week’s gain.
(Bloomberg) — The world is watching as the Israel-Hamas war intensifies, threatening to disrupt the global economy as well as flows of commodities, including oil. Elsewhere, aluminum producer Alcoa Corp. is set to report quarterly earnings on Wednesday after the close of trading and soybeans look to build on last week’s gain.
Here are five notable charts to consider in global commodity markets as the week gets underway.
In the wake of Hamas’s surprise attack on Israel, there’s a growing expectation that the US will tighten sanctions against Iran. The Islamic Republic supplies Hamas with funds and training, but has denied involvement in the operation. Iran’s oil exports have been surging: In August and September, shipments were about 40% higher than during the first quarter of the year, according to data from TankerTrackers.com. Any measures taken that would materially cut the flow of resurgent Iranian oil exports would not only boost demand for barrels from rivals such as Russia — where the US Treasury Department is ratcheting up enforcement of existing policies — but it would also further tighten the global market.
Should that happen, the US has some ability to fill the gap of lost capacity. Crude production jumped to a record during the third quarter and is expected to climb to 13.16 million barrels a day in the fourth quarter, according to the Energy Information Administration’s monthly Short-Term Energy Outlook. The US has routinely shipped about 4 million barrels a day to overseas markets. And there are other resources to help weather the storm: After slashing crude output this year to prop up prices, Saudi Arabia and its OPEC+ allies are left with a healthy reserve of spare production capacity. Outside of the Covid pandemic — when lockdowns caused demand to slump — it’s the biggest buffer in more than a decade.
Other spillover effects from the Israel-Hamas war include a dislocation to supplies of bromine, a key chemical used in flame retardants, oil drilling and water purification. Disruption to bromine production “is a potential risk flying under most investors’ radars amid the chaotic security situation unfolding in Israel,” Jesse Colvin, an analyst at Height Securities LLC, wrote in a note last week. The Dead Sea, the inland body of water on the Israeli-Jordanian border, is estimated to contain 1 billion metric tons of bromine, according to the US Geological Survey, and Israel is the world’s largest supplier.
Global aluminum prices have struggled as a sluggish recovery in China, the world’s biggest metals user, has squelched demand for the commodity used in everything from automobiles to skyscrapers to drink cans. Meanwhile, Alcoa — the largest US producer of the metal — has seen its shares tumble more than 40% this year amid the market’s softness and an abrupt change in leadership last month. As the company reports its third-quarter results, investors will be keen to hear from new Chief Executive Officer William Oplinger and will be focused on the outlook for shipments, and any fresh perspectives on a buildup of Russian supplies that risk distorting markets.
Soybeans are fresh off their first weekly advance since August after the US Department of Agriculture issued a bigger-than-expected downgrade to domestic production and slashed its outlook for global inventories. At the same time, exports are finally picking up. Prices had been pressured by the advance of the US harvest and sluggish demand amid fierce competition from Brazil, the world’s biggest supplier of the oilseed, which has benefited from a bumper harvest. Soybeans were up slightly in Monday trading.
–With assistance from Julian Lee, Gerson Freitas Jr. and Julia Fanzeres.
(Updates soybean prices in final paragraph.)
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