What to Watch in Commodities: Big Oil, Venezuela, Gold, Glencore

LAGOS (Capital Markets in Africa~) – Investors face a week packed with market-moving events: earnings season brings results from Big Oil; the U.S. and China resume trade talks; and the Federal Reserve embarks on a new era of openness. On top of that, iron ore investors are absorbing the impact of a second deadly mine disaster for Vale SA, and the U.S. just lifted sanctions on United Co. Rusal.

Among companies reporting, Royal Dutch Shell Plc, Exxon Mobil Corp. and Chevron Corp. all turn in their numbers. There’ll also be a keenly watched output report from Ivan Glasenberg’s Glencore Plc on Friday. Digger-and-dozer-maker Caterpillar Inc. will post its earnings figures later on Monday.

Lastly, keep watch on Venezuela and Iran. The crisis in Caracas is escalating, with Juan Guaido, president of the National Assembly, calling for fresh proteststhis week. On Iran, the European Commission may start up a mechanism so that its companies can skirt U.S. sanctions against that country’s crude.

Balancing Act
The oil industry’s titans turn in earnings this week as Shell reports on Thursday, followed by U.S. giants Exxon and Chevron on Friday. There’ll also be numbers from ConocoPhillips and Hess Corp. Investors will focus on whether companies can generate enough cash to maintain both their dividend and buyback plans, while still having enough left for growth after oil’s slump in the last three months of 2018.

For Shell, there will be questions about whether its $25 billion share buyback program is affordable without cuts to capital expenditures, which could one day hinder growth. Exxon’s Darren Woods will host the analysts’ conference call, the first time the company’s CEO has spoken after quarterly earnings. He has a tough task — Exxon is one of the few big oil companies not buying back stock, instead using cash to ramp up capital spending. Chevron may face queries on developments in crisis-hit Venezuela, where’s it’s vowed to stay the course.

Miles Apart?
The U.S. and China will press on with efforts to solve their trade impasse this week as President Xi Jinping’s top aide, the Vice Premier, visits Washington for talks. He’s set to meet with U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin on Wednesday and Thursday. Negotiators are expected to issue a statement after the session.

In the run-up to the gathering, Ross said negotiators are making progress on “easier” issues — like how much of certain American products the Chinese will buy, such as soybeans and liquefied natural gas — but plenty of tough topics remained. When the talks are under way, watch out for China’s manufacturing Purchasing Managers Index on Thursday, with the data expected to show that the sector remained in contractionary territory in January.

Powell Play
Gold’s impressive December rally has carried over into 2019 as concerns stack up about slowing global growth and holdings in exchange-traded funds continue to expand. This week, bullion investors will focus on the Federal Reserve’s first policy meeting of the year for clues on what comes next. While no change in rates is expected, the gathering will get more attention than usual as it marks the start of a beefed-up communications effort by the U.S. central bank.

Powell will hold a press conference after all eight scheduled policy meetings this year, double the number from 2018. That’ll hand him the opportunity to spell out with increased frequency the Fed’s stance. A message on Wednesday that hints at an extended pause may help to keep gold above $1,300 an ounce, while a signal of the opposite would dull the metal’s allure.

Blue Streak
Cobalt prices skyrocketed in recent years amid seemingly insatiable demand for the vital ingredient in electric car and mobile-phone batteries, but they have since slumped amid new supply and softening Chinese demand. Glencore, the world’s biggest shipper of the blue metal, has felt the brunt.

Buyers in China have reneged on contracts after seeing the price drop, forcing the company to renegotiate the commercial terms of the deals and putting a considerable dent in profit. And late last year, Glencore’s unit in the Democratic Republic of Congo suspended sales after detecting low levels of radioactivity. The commodities giant, which is also the biggest shipper of coal, reports full-year production numbers on Friday.

Grain Brains
Crop traders and analysts will be gathering for the Paris Grains Day conference on Friday amid a sluggish season for European wheat demand. The bloc’s exports are set for a fourth straight annual decline as it vies with Black Sea and North American rivals. French wheat is now cheaper than top shipper Russia, which is losing its grip on global exports as its prices climb, though European grain will still need to compete with U.S. supply.

The grains market has also seen a flurry of recent tenders from some of the world’s key importers. Countries including Tunisia and Jordan are said to have purchased wheat or barley, and Algeria and Turkey are also seeking supply.

Bulls Versus Bears
The threat of record cold weather in the Great Lakes is fueling optimism about natural gas futures. Traders and analysts surveyed by Bloomberg are the most bullish on the heating fuel since November with about 57 percent of respondents predicting the price will rise. That shift in sentiment after two months of downward pressure rests on forecasts the U.S. Midwest may experience the coldest weather in at least a decade over the coming week.

In the gold market, traders are less bullish, while in the agricultural markets, sentiment was positive for wheat as the surge in exports in Russia drew down stockpiles in the world’s largest exporter. Terminal subscribers can see the other commodity surveys here.

Source: Bloomberg Business News