Commodities Update: China's Rate Cut and Potential Impact on Oil and Metals

The Commodities Feed: China surprises with a cut in short-term rates

The Environmental Investigation Agency (EIA) estimates that US shale oil production could remain flat in July, with drilled but uncompleted wells (DUCs) inventory falling further in May. For metals, China’s surprise cut in short-term rates has been supportive of prices as Beijing appears to be taking measures to support economic growth

 

Energy – US shale production flat

In its latest drilling productivity report, the EIA estimates that US shale oil production could be flat at around 9.38MMbbls/d in July compared to an estimated 9.37MMbbls/d in June. The report also showed that drilled but uncompleted wells dropped by 30 over the month of May 2023 to 4,834 wells, the lowest level since May 2014. DUCs have been falling continuously since the start of the year with a year-to-date drop of around 270 wells since the end of 2022, reflecting lower investment in oil exploration for the year. A low inventory of DUCs could also make it challenging for the US to increase production quickly even if prices move up.

 

Canada is witnessing an increase in wildfires once again which could hurt oil and gas production in the region. The Alberta province reported 76 active wildfires on Monday compared to 71 on the previous Friday, while across Canada, around 431 wildfires were reported of which around 208 were reported to be out of control. Last month, the country faced an oil and gas production disruption of around 200-300Mbbls/d at one point, although some of the oil fields have subsequently restarted production since then. Spreading wildfires could increase disruption again this month as well. The WCS discount over the WTI has dropped back to US$12.9/bbl currently after increasing to around $15/bbl at the start of the month.