Commodity Roundup: Oil up after bullish API report, UBS favours gold as hedge

Oil prices rose on Wednesday, with Brent crude (CO1:COM) trading above $80/bbl following a larger-than-expected oil inventory withdrawal reported by API, and lingering supply fears amid the Israel-Gaza war.

“The American Petroleum Institute reported a significant drawdown in U.S. crude inventories of 5.2 million barrels, far more than a forecasted decline of 2 million. The data signalled that oil demand remains healthy,” Danish Lim, investment analyst at Phillip Nova told Reuters.

“Nevertheless, geopolitics remain the elephant in the room as the likelihood of an escalation in Middle East tensions could serve as upside risk to oil prices over the coming weeks.”

The IEA’s monthly oil market report was relatively bearish, with the agency slightly revising down its demand growth forecasts for next year, ING said, as it called the API data bullish.

Official U.S. government data from the Energy Information Administration is due later on Wednesday.

Meanwhile, UBS’s Chief Investment Office favors strategies to improve the resilience of portfolios and remain invested amid geopolitical tensions.

• Hold a well-diversified portfolio.
• Consider an allocation to hedge funds.
• Utilize gold, oil, and the Swiss franc as portfolio hedges.

“While investors are often inclined to sell because of immediate uncertainty, we believe this is typically counterproductive, locking in otherwise temporary losses and hampering an investor’s ability to participate when sentiment recovers,” Solita Marcelli, Chief Investment Officer Americas, UBS Global Wealth Management said.

Elsewhere, BMI (a unit of Fitch Solutions) on Wednesday revised downward its 2024 average price forecast for ICE-listed second-month cotton futures from USc82.0/lb to USc79.0/lb.

Expectations for abundant harvests in large producing markets, including the U.S. and Brazil, have driven downward pressure on prices from March 2024 onwards.

Cotton consumption is expected to lag production, resulting in a larger surplus for 2024/25 compared to 2023/24. The performance of the global economy represents a significant risk for demand, the brokerage said.

In the long term, BMI anticipates an improvement in the macro environment, which will support cotton prices beyond 2024, and expects prices to rise steadily between 2025 and 2028 with increased demand from major textile-producing countries and reduced import demand for Chinese cotton in light of relevant U.S. legislation.

Chinese consumption of cotton has been declining since its peak in 2007, with stricter labour and environmental regulations, the brokerage noted.

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