The Conversation (0)
Concerns about the Eurozone meant there was little movement in the markets this week, but the upcoming Greek elections are likely to change that.
Commodities mostly held steady this week as investors continued to focus on the European debt crisis.
Greek voters will be heading to the polls on Sunday, just over a month after the last election produced an inconclusive result. In an attempt to maintain calm in the run up to the vote, the country has banned the publication of opinion polls, but many believe the conservative New Democracy party and left-leaning SYRIZA are now running neck-and-neck. SYRIZA objects to the austerity measures being imposed on Greece by the European Union (EU) in exchange for the financial support the country needs to avoid defaulting on its loans. If the party wins the election, many fear Greece will exit the Eurozone, causing further instability for financial markets.
“The Greek elections are definitely a focus of market players and no one wants to be positioned ahead of these elections as the outcome is so uncertain,” said Daniel Briesemann, an analyst at Commerzbank.
On Wednesday, Moody’s cut its rating on Spanish government debt by three notches, or just above junk status, on concerns that Spain’s recently-accepted EU loan of up to 125 billion euros will add to its debt. On Thursday, the country’s ten-year bond yield hit 7 percent, a level widely seen as unsustainable.
Next week, investors will look to the G20 summit in Los Cabos, Mexico to get a glimpse of how world leaders will respond to the latest developments in Europe, the slowdown in China, and continued weak growth in the US.
In morning trade Friday, Brent crude is up 0.04 percent at $97.84 a barrel, while copper is up 1.2 percent at $3.39 a pound. Gold is up 0.5 percent at $1,627.60 an ounce.
Oil and Gas
The possibility of lower oil prices arose on Thursday after the Organization of the Petroleum Exporting Countries (OPEC) decided to keep its production limits at 30 million barrels per day.
However, the organization’s production is now above that, at 31.6 million barrels, largely because Saudi Arabia refuses to cut back on worries that high-priced oil will weaken western economies and hurt overall demand. That has drawn the ire of other OPEC members.
“There is a risk that prices will fall, uncontrolled, to levels from which it will be very difficult subsequently to bring them back,” said Algerian Oil Minister Youcef Yousfi.
Natural gas futures rose 14 percent on Thursday after the US Energy Department said that the amount of gas in storage rose 67 billion cubic feet last week, less than the 74 billion cubic feet that analysts were expecting.
Apache (NYSE:APA), the world’s second-biggest oil and natural gas producer by market value, announced on Thursday that it has acquired 880,000 acres of land that contain an estimated 3 billion barrels of crude oil in Kansas, Nebraska, and Montana.
The company also announced the discovery of a shale deposit in British Columbia that it feels could hold 48 trillion cubic feet of natural gas. Apache has been increasing its focus on onshore properties in North America in order to cut its reliance on riskier areas, such as Egypt.
Elsewhere, Petroleo Brasileiro (NYSE:PBR), or Petrobras, Brazil’s state-controlled oil producer, said that it will spend $236.5 billion through 2016 to build up its offshore operations. At the same time, Petrobras lowered its production target for 2020 by 11 percent, to 5.7 million barrels of oil a day from its earlier target of 6.4 million barrels.
Copper
Copper hovered around $7,400 a tonne on the London Metal Exchange for much of the week. As with most resources, European instability held the red metal back, but there was some reason for optimism after China, the world’s largest copper consumer, said that its imports of the metal rose 11.7 percent in May.
On Friday, copper rose as high as $7,519.25 a tonne on news that the world’s central banks are poised to act if the results of the Greek election cause further turmoil for financial markets.
Meanwhile, Toronto-based Duluth Metals (TSX:DM) said that its Twin Metals property in Minnesota contains much more copper and other minerals than estimated previously.
According to the company’s updated estimate, the site, already thought to be the world’s largest untapped copper deposit, contains an indicated 8 billion pounds of copper, 2.5 billion pounds of nickel, and 12.1 million ounces of palladium, platinum, and gold.
Chilean major Antofagasta (LSE:ANTO), which owns 40 percent of Duluth’s Twin Metals property, said that its operations are performing in line with its forecasts, and it still expects to produce 700,000 tons of copper this year at an average cash cost before by-product credits of $1.65 per pound. The company also said that it thinks that the copper market’s underlying fundamentals remain strong.
Gold
Gold rose more than 2 percent this week on concerns about the stability of the Eurozone and speculation that the US Federal Reserve may make further moves to stimulate the struggling American economy.
In the US, consumer prices fell more than expected in May, while the number of workers who applied for unemployment benefits rose. Further moves by the Fed could lower the value of the US dollar and increase the attractiveness of gold.
Colt Resources (TSXV:GTP) reported positive results from drilling at its Boa Fé project in Portugal. Last November, the company signed a three-year agreement with the country’s government to explore for gold at the site.
“Drilling at Boa Fé continues to deliver impressive gold grades close to surface,” said Nikolas Perrault, Colt’s president and CEO. The company said in April that it plans to start production at the project in 2014.
Securities Disclosure: I, Chad Fraser, hold no positions in any of the companies mentioned in this article.