OPEC decides in favour of continued production cuts
For a long time, commodities and commodity shares only played a minor role in the portfolio decisions of private and institutional investors, but this could change from now on. Some commodity experts believe that a commodity super cycle is now beginning due to increasing supply risks. Without sufficient commodities, climate change goals cannot be achieved. Few realise that commodity products such as the BNP Paribas ETC can sometimes outperform equity indices.
Since April this year, many industrial metals and also precious metals such as gold and silver have woken up from the lethargy of previous years and made a strong price leap. Energy commodities such as Brent oil and WTI oil, on the other hand, have fallen in recent weeks. However, the OPEC conference in Riyadh on 2 June did not yet calm prices, although the voluntary production cuts were extended by a quarter.
Risk-averse investors can buy Kazakhstani shares directly online via the broker Freedom Finance (Freedom Broker) from Cyprus if they open an account there beforehand, which is easy to do via the following link:
https://freedom24.com/invite_from/2952896 .
Andreas Männicke also gives his views on the new opportunities in Eastern Europe in his stock market letter EAST STOCK TRENDS (www.eaststock.de) and in his new EastStockTV video, episode 232 at www.YouTube.com.
Nothing works without commodities
Nothing works in this world without commodities. Investments to combat climate change are also not feasible without sufficient raw materials. The pricing of raw materials depends on many factors. Firstly, the respective supply and demand situation is decisive for pricing. However, there are always cases where commodity prices fall despite high supply deficits, as has repeatedly been the case with silver. It is not only the current stock levels that are important, but also the forecasts of the future supply and demand situation.
There are many factors that determine commodity prices
There are sometimes supply risks if important mines are affected by the weather, such as flooding or strikes in production, or if countries are hindered in their exports by government measures or sanctions. The most important players are still the USA and China, which produce raw materials themselves, but also demand and consume them.
And here there are always differences as to whether the current situation is being priced in or whether it is more the near future or more the distant future that is often reflected in the futures curve on the futures markets. It is often the futures traders who determine the spot market and there are always speculative moments on the futures market, which makes a price forecast for the coming months so difficult.
The respective global economic situation is always important for commodity demand, as is the forecast for the economic situation in the coming months, particularly for the USA and China. However, a forecast of weather conditions is also increasingly important, i.e. the issue of climate change and future energy costs. War, such as in Ukraine or Israel, also has a temporary impact on the supply and demand situation, including through sanctions and export restrictions, as we all felt in 2022/23 with the sharp rise in gas prices, from which Germany as an industrial location suffered the most, although gas prices in the USA have already fallen sharply again. Commodities are therefore a very complex investment topic, but it is sometimes worthwhile for investors to take a closer look at this topic.
OPEC loses market share and thus market power due to continued production cuts
A good example is the OPEC conference in Riyadh on 2 June. OPEC consists of 12 countries. However, some oil-producing countries coordinate with OPEC and act in accordance with the decisions of POEC, such as Russia. This is known as OPEC plus. Although Brazil has also been a member of OPEC since the beginning of the year, it does not (yet) want to participate in production cuts. OPEC has decided on a series of production cuts since 2022 in order to counter rising production from the USA and other non-member countries. However, this also means that OPEC is losing market share in the battle for “black gold”.
The USA as the laughing third in the battle for market share
The laughing third party is the USA as a non-OPEC country, which is constantly increasing its shale oil production and thus increasing its global market share, which is a thorn in Saudi Arabia’s side. The 12 OPEC countries are increasingly losing market share and thus market power. Ten years ago, OPEC still had a market share of 33 per cent, which has now shrunk to 28 per cent. Angola has left OPEC, but Brazil has joined in 2024, although Brazil does not yet want to join the OPEC decisions.
Oil prices collapse surprisingly after the new OPEC decisions
OPEC is currently cutting production by 5.86 million barrels/day, which corresponds to 5.7 per cent of global demand. The cuts relate to 3.66 million barrels/day, which previously applied until the end of 2024 and has now been extended to the end of 2025, and 2.2 million barrels/day of voluntary cuts, which have now been extended until the third quarter of 2024 The previous voluntary agreement, which not all countries had adhered to, will therefore expire at the end of June 2024. It has therefore now been decided to continue the voluntary production cuts by 2.2 million barrels/day until the third quarter of 2024, which should actually support the oil price. Nevertheless, the price of Brent oil slumped by almost 4 per cent to USD 78/barrel on 3 June, which is now an important chart mark.
The voluntary production cap involves the 8 countries Saudi Arabia, Algeria. Kazakhstan, Kuwait, Oman, Iraq, the United Arab Emirates (UAE) and Russia. Each country receives certain production quotas according to its own production capacities. As the United Arab Emirates has invested heavily in expanding its production capacities in recent years, it is now allowed to produce slightly more. Saudi Arabia is the most important country in OPEC. Saudi Arabia actually needs an oil price of USD 96 per barrel in order to balance its budget.
After Q3 2024, the production increase is to be gradually adjusted to market developments and reversed at any time It was also decided that OPEC’s collective production cut of 3.66 million barrels by 9 OPEC members should apply until the end of 2025. Although this was an online conference, Kazakh Energy Minister Almasadam Satkaliev even travelled to Riyadh. At USD 78/barrel on 3 June, the price of crude oil was still well below the 6-month high of USD 92/barrel reached in April 2024 and could even slump to USD 78/barrel after further corrections if it falls below USD 78/barrel on a sustained basis.
The OPEC conferences take place twice a year and are supposed to be binding for at least 12 member countries. Angola left OPEC at the end of 2023, which shows the cracks in OPEC. In addition, shale oil from the USA is becoming an increasingly important competitor for OPEC, as the USA always wants to enforce low oil prices and often puts political pressure on Saudi Arabia.
Who will comply with the new OPEC decisions and who will not
However, there are always cases where individual countries do not adhere to the self-imposed production limits, at least temporarily, and produce more than agreed. For example, Iraq and Kazakhstan have recently repeatedly attracted attention for producing more oil than agreed. Russia also remains an important player in this context. Although it is not a member of OPEC, it is generally closely linked to OPEC as an important oil-producing and exporting country. However, here too there is often a lack of transparency as to whether the self-imposed production cuts are actually being adhered to. Russia absolutely needs the oil and gas revenues to finance the war, but the sanctions imposed by the USA and the EU have tried to prevent this – so far unsuccessfully, as Russia has found new customers such as China and, above all, India.
The price of crude oil first rose from USD 82 to USD 92 per barrel in March as a result of the Israel/Iran conflict, but then fell back below the starting level at the beginning of April, now that there are no signs of an expansion and escalation in the Middle East. A floor now appears to be forming at around USD 78/barrel. The decisions taken at the OPEC conferences only had a major impact on the oil price in the afternoon hours of 3 June with US trading. The price of Brent oil fell sharply by almost 4 per cent to USD 78.2/barrel on 3 June and the price of WTI oil fell by 4.0 per cent to USD 74/barrel. However, if the price of Brent oil falls below USD 78/barrel, the oil price could quickly collapse to USD 70/barrel or below.
After oil prices fell by a surprising 4 per cent following the OPEC conference, things do not look good for the oil price on the charts either. Now it depends on the next economic data from China and the USA, but also on the inventories in the USA, how the oil price will develop. In the event of an economic slowdown, the oil price could plummet. Although the price of crude oil fell sharply by over 10 per cent from USD 92 to USD 81.65 per barrel between the beginning of April and 31 May, it has still risen by 5.8 per cent since the beginning of the year.
Here are the weekly and annual performances of the most important indices up to the end of May 2024 (source: Heibel ticker 31 May 2024)
BNP Paribas ETC also interesting for private investors
The BNP Paribas ETC on energy commodities could have achieved a performance of almost 14 per cent in euros by 24 May, compared with almost 24 per cent in the previous month. That is far more than could have been achieved with share indices such as the DAX 40 or S&P 500 Index. However, not only with the BNP Paribas “Exchange Traded Commodities” (ETC) of energy commodities, but also with some ETC on industrial metals (here above all copper, nickel, zinc and tin) and on precious metals (here above all gold and silver) one could have clearly outperformed the DAX 40 or the S&P 500 Index.
Industrial metals (such as copper) with a sharp jump in prices since March 2024
All of the industrial metals mentioned broke out of the sideways trend at the beginning of April and have even risen by over 20 per cent in just a few weeks since March 2024. The reasons for this were a mixture of economic optimism – China is aiming for GDP growth of 5 per cent again and there are still no signs of a recession in the US – but also supply risks. Copper is always taken as an early indicator for the economy. The copper price has also risen sharply by 28 per cent since the beginning of March, from USD 8,400 to USD 10,800 per tonne, only to correct sharply again to USD 10,100 per tonne by the beginning of June. However, it remains to be seen whether this was a false signal, as the US could still find itself in difficult waters in the second half of the year despite the US election, and the trade conflict with China could escalate. However, if China were to attack Taiwan this year, we can expect to see sharp price falls, particularly on the equity markets, but also selectively on the commodity markets. In the long term, however, in view of the large quantities of copper needed to cope with climate change, supply bottlenecks for copper are to be expected and it will then be very much a question of what will be priced in more, the near future or the distant future.
Gold and silver benefit from the increase in geopolitical risks
Gold and silver are likely to remain in demand as a “safe haven” as geopolitical risks and the threat of world war increase, even if there is a new banking crisis at regional banks in the USA due to high interest rates. Gold has also risen sharply this year since the beginning of March by almost 20 per cent from USD 2050 to USD 2450/ounce, which is a new all-time high. Silver has also risen from USD 23 to USD 32 per ounce in the same period, only to consolidate again at USD 30 per ounce. Silver is still a long way from its all-time high of USD 50.
Although there has been increased buying of gold by China and other central banks in recent months, the strong price increase of almost 20 per cent is surprising in view of the fact that the Fed has no plans to cut interest rates quickly due to the still very high inflation rates in the US of over 3 per cent, which actually speaks against gold. At the earliest, the FED is now holding out the prospect of an interest rate cut of 0.25 basis points in September 2024, although it is not certain whether this will happen at all. But it is an election campaign and the Fed will certainly support Joe Biden and at least cut interest rates.
Threat of a new banking crisis in the USA
However, the high interest rates are now causing some US regional banks to stumble, which could even trigger a new banking crisis in the US in late summer. One regional bank in the USA has already gone bankrupt this year and others could follow. However, the sharp increase in geopolitical risks is now likely to play a greater role in causing investors to flee to the “safe haven” of gold.
Are the BRICS countries planning a gold-backed “BRICS” currency?
The US dollar has recently been trending sideways in a range of 1.08 to 1.09 EUR/USD. However, the rumour that the BRICS countries are aiming for a new gold-backed BRICS currency on a token basis in the medium term in order to break the dominance of the US dollar in global trade also plays a role here, which will still take some time, but is already being strategically prepared in the background. The BRICS Plus community now has Iran, Saudi Arabia and the United Arab Emirates on board, which account for 40 per cent of global oil production, but also have the important raw materials that the “West” urgently needs for growth and investment to tackle climate change in order to continue to grow. Strategically important raw materials also play an important role here, where China will sooner or later play a key role in the battle for access to raw materials. Africa is increasingly becoming a pawn of the giants and big players USA/China, with more and more African countries now turning away from the West and joining China/Russia.
The Ukraine war as a catalyst for a new multipolar world order
The Ukraine war is not only a proxy war between the USA (NATO) and Russia, but also acts as a catalyst for a new multipolar world order. The aim is for the BIRICS countries to prevent the USA from striving for hegemony and dominance and thus also the colonisation of the world by the USA, whereby the USA always has an important ally in the form of the UK, at least militarily. The USA and Great Britain are also responsible for the fact that the war in Ukraine has not yet come to an end, although this was already agreed between Ukraine and Russia in April. The Ukraine war is also partly about raw materials, namely the largest lithium reserves in Europe in Ukraine.
In June, a “peace conference” for Ukraine will take place in Switzerland, where over 100 countries are supposedly taking part, but not the most important country, namely Russia, which is a farce. This is yet another missed opportunity to achieve peace quickly through diplomacy. More and more weapons do not create peace, but only increase the potential for escalation. However, the West obviously wants the war to be decided on the battlefield, and things are not looking good for Ukraine.
Increasing potential for escalation in the Ukraine war: is a third world war now looming?
Now the USA, but also France and the USA, want to allow their weapons to be used to attack positions in Russia, also in order to save the now hard-fought city of Kharkiv in eastern Ukraine near the Russian border. NATO chief Stoltenberg is also recommending such an approach, thereby crossing an important “red line”. However, this is a very dangerous game, because the potential for escalation on the way to a third world war becomes ever greater. It is surprising that the protest on the streets against such warmongering is not growing. But the European elections will take place on 10 May and this will also be a choice as to who wants to end the war in Ukraine through diplomatic negotiations or who only wants to prolong it unnecessarily by supplying weapons or even accept the danger of a third world war, which would be unforgivable.
NATO is crossing more and more “red lines”
As a vassal state of the USA, Germany is also increasingly in danger of slipping into the middle of a third world war without any recognisable resistance, as NATO is now clearly crossing more and more “red lines”. The oath of office of Scholz and other members of parliament is to devote all their energy to the welfare of the German people, to increase the benefits and avert harm and to do this conscientiously. But is that what politicians are now doing who are in favour of firing NATO weapons into Russian territory and possibly sending NATO troops into Ukraine, as French President Macron wants?
Is there now a threat of a new Taiwan war?
At some point, Putin’s patience could run out and he could use tactical nuclear weapons against NATO positions in the Ukraine war and then we won’t be far away from World War 3. Then the wheel can no longer be turned back. But do we really want that? This may also be one of the reasons why gold and silver have risen so sharply in recent times. China has also already held a manoeuvre off Taiwan and is threatening to interfere with the USA. The geopolitical environment is thus becoming increasingly threatening, which also speaks in favour of gold.
Cryptocurrencies have arrived on Wall Street as an investment theme: Ethereum goes through the roof
However, cryptocurrencies are now also increasingly in demand as an alternative to fiat money. Since 20 May, the price of Ethereum in particular has risen sharply from a high of 3,000 to 3,900 ETH/USD, as an ETF for Ethereum (Ether for short) has now also been approved by the SEC for BlackRock, which came as a positive surprise to some investors. In the run-up to the SEC’s decision, Ether had already risen sharply by over 20 per cent since 20 May, from 3000 to 3800 ETH/USD, its new high for the year. Bitcoin has even risen by 168 per cent in 1 year to over 69,000 BTC/USD and reached a new all-time high of over 70,000 BTC/USD in March following the approval of BlackRock’s new ETF. The large, market-heavy cryptocurrencies have now clearly become an investment theme on Wall Street. New annual highs can be reached quickly, but the global stock markets have to “join in” for this to happen. However, the new all-time high was already achieved in March with Bitcoin. Gold and cryptocurrencies were therefore one of the best investments in the world and could remain so.
Trump comes out as a crypto fan – soon to be out of prison?
US presidential candidate Donald Trump has now been found guilty of 34 counts of document forgery in connection with a payment of USD 120,000 by a New York court, although the sentence will not be announced until 11 July. Trump was outraged and spoke of a “rigged” trial. The sentence could be a fine, but could also be a suspended prison sentence. He will probably appeal either way. But this could cost Trump important votes. Previously, Trump turned into a crypto fan, which he was not before, in order to win votes. Certainly Trump could and would end the Ukraine war more quickly, which would not be insignificant for world peace. But Trump would then also spark a new economic war with China, which in turn would not be entirely harmless. The European elections are also on 10 June, where there could be a shift to the right and a lesson for the established parties.
Eastern European stock markets as outperformers
However, the stock markets in Eastern Europe have also performed well recently, in some cases even outperforming the DAX or the S&P index. For example, the stock exchanges in Bulgaria (+16 per cent with the BTX index), Romania (+13 per cent with the ROTX index) and Serbia (+16 per cent) outperformed the DAX with +10 per cent up to 31 May. The indices from Hungary, Poland and the Czech Republic are roughly on a par with the DAX, having risen by around 8 to 10 per cent since the beginning of the year. The SETX index for shares from south-eastern Europe also clearly outperformed the DAX with a gain of 14 per cent.
Kazakhstan benefits from high commodity prices
However, there were also strong corrections here from 20 May. The KTX Local Index for shares from Kazakhstan was one of the best performers, rising 29 per cent since the beginning of the year to 2123 index points. Like Russia, Kazakhstan is a very resource-rich country and benefits from high commodity prices. Germany also purchases some of its oil from Kazakhstan, which is intended to replace some of the oil from Russia. Risk-averse investors can now buy shares from Kazakhstan directly in tenge if they open an account there beforehand, which is easy to do at the following link: https://freedom24.com/invite_from/2952896
Freedom Broker offers market access to Kazakhstan
You can also buy shares from Kazakhstan directly online via the broker Freedom Finance from Cyprus, which also presented itself at the Invest trade fair and attracted a lot of interest, which has the advantage that you can quickly receive the sometimes very high dividends in your securities account. Halyk Bank, for example, has a dividend yield of 16% and a return on equity of 34%. At Freedom Broker you also receive interest on your savings account in USD of over 8% and in euros of over 6%. You can easily open an account online at the following link: https://freedom24.com/invite_from/2952896 If you need advice on exchanging Russian ADRs for original shares, Freedom Broker, which also has a branch in Berlin, is the best place to go.
However, investors can still buy Russian ADRs at discount prices in the OTC market via Freedom Broker. Something similar is also possible via the broker Zerich Securities Ltd from Cyprus if you open an account via the following link: https://trade.mind-money.eu A list of tradable Russian ADR is published in the stock market letter EAST STOCK TRENDS (www.eaststock.de). Both brokers also offer participation in lucrative IPOs on Wall Street as well as high returns on overnight and fixed-term deposits.
Inform first, then invest
Find out more now about the background and development of the Ukraine/Russia crisis as well as the future recovery potential of undervalued shares from Eastern Europe. There are also new opportunities in the Baltic states, south-eastern Europe and the CIS republics (Kazakhstan, Georgia), with the respective share indices all up in 2023. In 2023, 12 stock exchanges from Eastern Europe were among the 30 best-performing stock markets in the world, with 5 clearly outperforming the DAX. In 2024, 10 stock exchanges from Eastern Europe outperformed again with a strong gain. It is therefore still worth looking beyond the horizon to Eastern Europe.
Order a trial subscription now (3 issues by e-mail for just €15) to the monthly stock market letter EAST STOCK TRENDS (EST) with another Ukraine/Kazakhstan/Russia special and a dividend special as well as lots of background information and new investment suggestions such as the “Share of the Month” and lucrative certificates at www.eaststock.de, under Stock Market Letter. The last EST was published on 24 May 2024.
TV/radio notes: On 5 February 2024, Andreas Männicke was interviewed by Carola Ferstl on Money Talk about gold, commodities and the new opportunities in Eastern Europe. You can download all radio and TV interviews in the video archive at www.eaststock.de, including the last video in EastStockTV, episode 232. By the way: have you already subscribed to the EastStockTV YouTube channel?
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