Commodities Sector Hurt as Oil and Iron Ore Stay Low

The Australian Commodities Sector been hurt today, with iron ore prices taking a tumble and the price of oil staying low.

On the oil side of things, Sundance Energy Australia Ltd. [ASX:SEA] and Woodside Petroleum Limited [ASX:WPL] have seen drops of 8.9% and 2.3% respectively.

With regards to iron ore stocks, BHP Billiton Limited [ASX:BHP]Rio Tinto Limited [ASX:RIO]South32 Limited [ASX:S32] and Fortescue Metals Group Limited [ASX:FMG] are all down, with Fortescue being hit the worst, down 4%.

Oil could be set for a bounce

At Markets and Money, our outlook for oil is not as bearish as others.

Yes, Trump has been demanding that the Saudis keep oil cheap — perhaps as a reward for cover on the Khashoggi murder.

But as Jason Stevenson points out, Chinese demand is set to ramp up.

With demand growing by 1.5% a year, the International Energy Agency expects oil demand to rise for at least the next 20 years — with consumption destined for 125 million barrels per day around mid-century.

While electric vehicles could help drive demand lower, uptake has still been slow and emerging markets (non-OECD countries) still have an unquenched desire for crude:

Emerging Economies Oil

Source: Reuters

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Iron ore stocks less inviting unless China pulls trigger on stimulus

In the short term, iron ore prices are looking less inviting compared to a few weeks ago.

Today brought further pain for the price of iron ore as Business Insider reports:

The price for benchmark 62% fines slumped 2.8% to $70.13 a tonne, leaving it at the lowest level since October 8.

It’s now lost 9.2% since November 9, including 6.1% in the past three sessions alone.’

Higher grade ore was also under pressure with the price for 65% Brazilian fines slipping 2% to $88.90 a tonne, a level not seen since late June this year.

Business Insider puts this down to weakness in steel futures, but this could also be down due to 28 cities in China issuing orange level smog alerts for the November 24-26 period.

Under these conditions, steel mills must halve their output.

All of this will have iron ore stock traders looking for China to pull the trigger on more expansive stimulus measures.

More in depth coverage of iron ore and oil can be found here.

Regards,

Lachlann Tierney

For Markets and Money

PS: 10 resource stocks that could be set for a breakout. Get the free report here.


Lachlann Tierney is a writer for Markets & Money. He has lived and studied in the US, the UK, and Australia. With an MSc from London School of Economics (LSE) he brings a strong grasp of geopolitics and world affairs to his analysis. Lachlann is always on the lookout for the news that will give you an edge in tomorrow’s markets.


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