Energy – India’s secondary tariffs come into effect this week
Oil prices managed to finish last week higher, settling up almost 2.9% higher as enthusiasm over a potential Russia-Ukraine ceasefire wanes. Uncertainty prevails as US President Trump once again threatens to impose tougher sanctions on Russia unless there’s a deal to end the war. Trump said there needs to be more clarity within roughly two weeks. However, the market may be reluctant to read too much into this latest threat, given the lack of action taken by the US administration against Russia following the Trump-Putin summit.
In the near term, we may see the oil market benefit following Fed Chair Jerome Powell’s Jackson Hole speech, which was largely dovish and provided a boost to most risk assets. The market is pricing in more than an 85% probability that the Fed cuts interest rates by 25bp in September, up from around 72% ahead of Powell’s speech.
It’s looking increasingly likely that secondary tariffs against India for their purchases of Russian oil will go ahead on 27 August. There appears to be little progress in trade talks between India and the US, since the US announced the tariff earlier in the month. Furthermore, Indian refiners have been showing increased interest in Russian oil, after state refiners initially paused purchases until there is clarity from the government. If India continues to buy Russian oil despite the 25% secondary tariff, it does little to change the market outlook. Instead, it only confirms the bearish outlook for oil prices.
Speculators continue to reduce their net long in ICE Brent amid a bearish outlook. Speculators sold 23,852 lots over the last reporting week to leave them with a net long of 182,695 lots as of last Tuesday. The move was driven predominantly by longs liquidating. Meanwhile, speculators also sold 19,578 lots in NYMEX WTI, leaving them with a net long of 29,686 lots. This is the smallest position held in WTI since October 2008.
Fading optimism over a Russia-Ukraine peace is providing support for European gas prices. At the same time, concerns over flows to Europe amid upcoming Norwegian maintenance will also provide support to the market. Front-month Title Transfer Facility (TTF) futures managed to settle more than 8% higher over the week. EU gas storage is close to 76% full, below the 91% seen at the same stage last year and lower than the 83% 5-year average.
US natural gas has been more bearish, with Henry Hub down 7.5% over the last week and settling at its lowest level since October 2024. This is despite last week’s storage build coming in below average. However, overall storage remains 5.8% above the 5-year average, while we are moving towards a period where we expect to see reduced cooling demand. This is allowing for larger storage builds ahead of the /2026 winter.
Metals – Gold jumps as Powell signals rate cuts
Gold jumped last Friday as the dollar and bond yields fell after Federal Reserve Chair Jerome Powell suggested an interest rate cut in September, pointing to increasing labour market risks despite persistent inflation concerns. Traders added to bets the Fed will cut rates next month. With US rate cut bets intensifying after Powell’s speech, gold could be poised for another fresh record high.
World Steel Association data shows that global steel production fell 1.3% year on year to 150.1mt in July, as lower output in China, Japan, Russia, and Germany offset higher output from India and the US. Cumulative global steel output fell 1.9% YoY to 1,086.2mt over the first seven months of the year. Chinese steel production fell 4% YoY for a second straight month to 79.7mt last month amid government efforts to gain control over supply. Over the first seven months of the year, output fell 3.1% YoY to 594.5mt. In the EU, crude steel production dropped 7% YoY to 10.2mt with Germany (-13.7% YoY) dominating the declines.
Source: ING
