While oil and copper continue to compete for first place in the global commodity race for performance year-to-date (at least in US$ terms), the date points we have been following continue to suggest a mixed picture on the supply and demand side. Ultimately, the US$ is as fundamental for these two commodities as any supply and demand data points. That said, it is worth reviewing some recent data points for each commodity:
- The DOE announced that oil supplies fell by 1.8MM barrels domestically, which was slightly less than the consensus estimate of 2.1MM barrels. Currently, inventories in the U.S. are 7.3% higher than the five-year average;
- In contrast to the DOE report from yesterday, the API signaled a much more bearish build of oil. The American Petroleum Institute indicated that inventories had increased by 3.1MM barrels week-over-week;
- On the demand side, U.S. daily fuel demand has average 18.6MM barrels over the past four weeks, which is down 4.8% year-over-year; and
- In Nigeria, the Movement for the Emancipation of the Niger Delta declared a 60-day ceasefire in attacks on the oil and gas installations.
- BHP Billiton reported a 21% decline in copper output last quarter, which is significant given its place as one of the world’s largest copper miners;
- China in the first half of 2009 has consume 3.7MM tonnes of copper, up 12.4% from a year ago;
- Nippon Mining and Metals recently indicated that they believe that they expect copper demand from China to ramp into October as a result of increased stimulus spending;
- Copper inventories on the LME rose to a 1-month high on July 23rd to 271,725 tonnes.
Generally, both copper and oil data points seem to be suggesting a buildup on the inventory side, though both supply and demand for copper appear quite favorable versus oil. The US$ seems likely to prevail as the key driving factor for the price of oil and copper. As the dollar goes down, these commodities are inherently cheaper and, all else equal, will re-flate. If and when the dollar stabilizes, global supply and demand points will likely become the primary fundamental drivers for price.
Daryl G. Jones