Commodities: Natural gas jumps, Saudi unlikely to weaponise oil

Commodities were on a roll at the start of the week with natural gas pacing gains amid analyst chatter around expected continued strong demand for liquid natural gas in Asia over the coming winter, led by China, albeit followed by a drop.

"We expect Asia to continue leading global LNG demand growth over the next couple of years as new import capacity is added and import capacity utilization increases. We estimate infrastructure limitations restrict the increases to ~28 mtpa in 2019 and ~23 mtpa in 2020," analysts at Bank of America-Merrill Lynch said in a research note sent to clients.

Against that backdrop, as of 2027 BST, natural gas futures on NYMEX were ahead by 2.88% to $3.25/MMBtu.

However, BofA-ML expected LNG supplies to catch-up thereafter, sending the so-called 'Japan Korea marker' down to $9/MMBtu from a high of $15/MMBtu predicted for over the winter.

In parallel, front month Brent crude oil futures were ahead by only 0.39% to $71.62 per barrel on NYMEX.

That was despite a veiled threat from Saudi at the weekend to wield oil as a weapon if other countries acted against it in response to the alleged killing of a dissident journalist in Turkey.

Nevertheless, according to Capital Economics: "We do not expect Saudi Arabia to cut oil production in response to US criticism over a missing journalist, not least because it will want to preserve the “anti-Iran axis” with the US.

"However, if the Kingdom were to cut output on a similar scale as it did in the 1970s, a price of $150 per barrel would not be unrealistic."

Agricultural futures were again in big demand, with December wheat on CBoT adding 1.50% to $5.25 a bushel, alongside a gain of 1.20% to $3.7825 for similarly-dated corn.

Over in metals, gold futures for December delivery on COMEX were also wanted and were rising by 0.56% to $1,228.80/oz..

Base metals on the other hand were mixed, although three-month LME copper was slightly positive at $6,301 per metric tonne, with traders at Sucden Financial citing imminent smelter shutdowns in Chile as the main factor behind the move.

From a bird's eye view, the Bloomberg commodity index was jumping 1.03% to 87.13, while the spot US dollar index was 0.14% lower to 95.0880, with the latter close to its session lows.