Commodity Calls: Week Ending 30 August 2024

Libya shuts down 50% of its oil production, BHP downgrades copper demand in 2024, and gold looks to break its “September Curse”.

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Crude Oil

Libya’s crude oil production has fallen 700,000 barrels per day (bpd) since the nation’s eastern government shut down oil fields in an escalation of internal political conflicts.¹ Libya is currently producing less than 600,000 bpd, less than half of last month’s daily average of 1.18 million bpd.
Strong economic data from the US has reduced concerns about demand for crude oil in H2 2024. US GDP grew at an annualised rate of 3% in Q2, higher analyst estimates of 2.8%.² Consumer confidence in the nation also rose more than expected.

The OPEC+, a group of oil producing nations, are set to proceed with an increase in oil production starting October.³ The bloc says its production hikes are appropriate given the context of Libya’s supply shock and the initiation of pledged cuts by members such as Russian to compensate for overproduction earlier in the year.

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Copper approached one-month highs as Federal Reserve Chair Jerome Powell confirmed the impending arrival of rate cuts in September.⁴ The Fed Chair acknowledged positive progress on inflation, and a weakening in the labour market which warrants an adjustment in the current fiscal policy.

BHP Group has cut its forecasts for Chinese copper demand in 2024 and also warned of a potential supply surplus in 2025.⁵ China is the world’s largest consumer, responsible for 54% of global demand in 2023, however as the country grapples with slowing economic growth and an ongoing property crisis, copper demand is set for volatility.
Mining Unions in Chile are slowly resolving their conflicts with mining firms.⁶ Over the weekend, about 300 miners returned to work after reaching an agreement with Lundin Mining Corp. The weeks prior, BHP Group signed new labour contracts, preventing the shutdown of Escondida, the largest copper mine in the world.

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Gold has outperformed equities during all three Federal Reserve rate-cut cycles since 2000, returning an average of 6.9% against an average of -2.9% by the S&P 500.⁷ A weaker USD could also further boost gold’s performance in Australian dollar terms over the upcoming Fed rate-cut cycle.

Gold seems to suffer from a September curse. The precious metal has fallen in value every September since 2017 by an average of 3.2%.⁸ There is no definitive reason to this seasonality, however academics hypothesise that it may be due to investors derisking their portfolios with gold during summer holidays then selling gold upon their return in late-August/September.

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