Commodities Hit Hard in June as demonstrated by the graph to the right – GSCI Energies fell -6.6% last month, with Grains -12.8% and Industrial Metals -13.8%. Pundits blamed macro traders / asset allocators from shifting their fears from supply disruption to demand destruction, expecting that higher interest rates will knock over the global economy.
OPEC Production Declined Slightly to 28.6 million barrels per day (mbpd) during June, much less than current quotas of 33.4 mbpd. Libya and Nigeria both fell the most behind on their extraction potential due to political strife. At times in June Libya’s output was effectively cut by 90% as the major Ras Lanuf and Es Sider ports were closed, causing the Sarir field to shut in. By month-end, production was about 35% of normal. Iraq’s oil minister expected crude exports to reach 3.80 mbpd in June and 3.85 mbpd in July from 3.30 mbpd in May. OPEC+ again loosened allowances at their early July meeting but the impact will be limited given the widening gap between actual production and quotas. The 648,000 barrel increase restored the final portion of the 9.7 mbpd cut at the beginning of the pandemic due to falling demand. Russian oil production reportedly increased again in June to 10.7 mbpd, close to March’s 11.0 mbpd level. Deputy PM Novak said that extraction will continue to rise during the summer. OPEC said in mid-June that world oil demand growth will slow in 2023 as fuel and crude prices will raise inflation and hurt global economies. OPEC saw world demand growth of 2 mbpd or less in 2023, a rise of just 2%, compared with growth of 3.36 mbpd expected in 2022.
US Oil Production moved higher to 12.2 mbpd during June while companies expanded operating rigs from 574 as of May 27th to 595 as of July 1st. After receiving a Supreme Court block on the EPA restricting CO2, the Biden Administration accelerated a long-running legal battle against Texas’ monitoring of methane and ozone released by oil and gas drilling. If successful, Permian drilling disruptions could ensue as companies install monitoring and air quality equipment. Per AAA, US average regular gasoline prices hit a new high to $4.84 per gallon on June 30th, 17¢ higher from last month. California ended June at an average of $6.14/gallon, at least a slower increase than last month. High gasoline prices expected to continue as US refining capacity is down about 1 mbpd from the beginning of the pandemic (about 5% of capacity) with an additional 0.7 mbpd of capacity expected to be close by the end of 2023. US gasoline prices could be worse: in Brazil, it costs one-third the minimum wage to fill an average gas tank versus the US at about 6%).
Farmers Completed North American Planting with greater-than-expected acres in corn, wheat and cotton at the expense of soy. Crop conditions, however, were shaky with slow declines in the good-excellent categories. Weather had been hot and dry, though decent rain was in the forecast. Rail issues bedeviled US fertilizer, grain and livestock movements, though fertilizer costs declined to the lows of February, hopefully resolving that crisis (see graph right). The Ukrainian Grain Association (UGA) raised its 2022 crop forecast for grain and oilseeds in Ukraine by +4.4% compared to its May forecast to 69.4 million tonnes from 66.5 million tonnes, largely on an increased assessment of seeded area of +1.6%. Export bottlenecks from the war continued to limit Ukrainian shipments. Ukraine had sent 0.6 million tonnes of grains to the Romanian Black Sea port of Constanta since Russia invaded on Feb. 24, with an additional 0.1 million tonnes en route. Meanwhile, Turkey detained and released a Russian ship that Ukraine claimed was full of stolen Ukrainian grain; its destination was not reported. NASA satellite images showed that Russia occupies over 20% of Ukraine’s arable land, but one can assume that little is being tilled.
If you ever have wanted your own dinosaur skeleton, a fossilized Gorgosaurus (a smaller, cuter relative of the famous T.Rex) will be auctioned in New York by Sotheby’s – estimated price tag of $5-8 million. All of the other known Gorgosaurus skeletons are in museum collections, making this one the only specimen available for private ownership, the auction house said.
All the best in your investing! Stay healthy!
David Burkart, CFA
Coloma Capital Futures®, LLC
Special contributor to aiSource