Oil has hit a new three-and-a-half-year peak, and other commodity prices – notably nickel and aluminium – moved sharply higher as Donald Trump’s sanctions and the continuing conflict in Syria fuelled fears of supply shortages.
Brent crude rose 1.7% to $74.74 (£52.67) a barrel on Thursday, the highest level since November 2014 when oil group Opec began increasing production to protect its market share, a move that subsequently led to a supply glut and a price slump to $27 a barrel just over a year later. More recently Opec had agreed with Russia, another major supplier, to cap output and protect prices, even though growing production from US shale companies threatened to undermine this strategy.
However a surprise drop in US oil inventories this week, along with concerns about Middle Eastern supply following the military strikes on Syria by the US, the UK and France, have kept crude prices buoyant.
Meanwhile, ahead of an Opec meeting on Friday, Reuters reported that Saudi Arabia wanted to see prices as high as $100 a barrel. Joshua Mahony, market analyst at IG, said: “Friday sees a host of energy ministers from some of the most influential oil producing nations meet in the Saudi city of Jeddah, heightening anticipation of what could be yet another production freeze/cut extension in the offing.”
Lee Wild, head of equity strategy at Interactive Investor, said: “Despite the influence of US shale, Saudi Arabia still calls the shots on global oil markets, and it’s increasingly obvious the Saudis are comfortable with oil at $80 or more. Add a drop in weekly US oil reserves to the mix and the only way for crude prices is up. Saudi bullishness should be no surprise given it must somehow bankroll Crown Prince Mohammed bin Salman’s expensive reforms and modernisation at home.”
There is also the prospect that the US might reinstate sanctions next month on Iran, the third largest producer in Opec, over its nuclear programme.
Even if Iran escapes renewed sanctions, Trump’s moves to impose tariffs on steel and aluminium and on 1,300 Chinese products – prompting fears of a global trade war – and his actions against Russian metal companies have already had a major effect on other commodity prices.
Earlier this month the US imposed sanctions on a number of Russian oligarchs and companies, including aluminium-producer Rusal, and there are suggestions that these could be broadened to include key Russian nickel supplier Nornickel. The company is linked to both Rusal and the oligarch who controls it, Oleg Deripaska. UBS analyst Lachlan Shaw told Reuters: “A logical extension would be if you were to broaden sanctions, then Norilsk would fall under that remit.”
Nickel – used to make stainless steel and is a key component in rechargeable batteries used in mobile phones and electric cars – surged as much as 9.3% to $16,690 a tonne on Thursday, the highest since December, 2014. That followed a 7.5% rise on Wednesday.
Aluminium rose 5% on Thursday, making a 32% rise this month.
But Julius Baer analyst Carsten Menke said the recent moves in metals like nickel could be due to speculation rather than fundamental issues. He told Reuters: “If any commodity moves more than 10% in two days, it’s either a severe disruption to supplies, which we don’t have in this case, or it’s speculators. In the case of nickel it’s the latter, the rally is absolutely overdone.”
The Trump tariffs on steel and aluminium have already prompted complaints to the World Trade Organisation from the European Union, India and China, and on Thursday they were joined by Russia. The complaint argues that the tariffs are aimed at protecting US domestic producers from surging imports rather than – as the US argues – for national security reasons.
A number of countries, including Canada, Mexico, South Korea and Australia – as well as the EU, have won temporary exemptions from application of the tariffs, pending talks with the US.