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Trafigura warns of softer price outlook for key commodities as markets normalize


Economic headwinds from inflation, interest rates threaten growth

Traded petroleum volumes shrink to 6.3 mil boe/d, down 14% on year

Sees longer-term oil price support from lack of upstream investment

  • Author
  • Robert Perkins
  • Editor
  • Jonathan Fox
  • Commodity
  • Oil

Commodity trading group Trafigura sees a softer price outlook for key commodities this year as markets normalize in the wake of initial supply chain upheavals from sanctions against Russia.

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Reporting fiscal six-month earnings to March 31, Trafigura said it expects its supply chain management services to remain in demand during the second half of the year but is seeing "a return to more normal market conditions."

As a result, the Singapore-based trading house said it expects the pace of its growth to slow compared with the previous 12 months. Supply chain disruption from Western sanctions against Russia helped more than double Trafigura's earnings in 2022 to new record highs.

"We are conscious that there are a growing number of headwinds, including inflationary pressures, higher interest rates and ongoing geopolitical tensions, which could impact global economic growth," Trafigura said. "...As such, commodity prices may struggle in the months ahead, especially if higher interest rates slow growth, the US dollar continues to rise and downbeat sentiment around China persists."

Trafigura's overall volumes of traded crude and petroleum products in the fiscal six-month period averaged 6.3 million b/d of oil equivalent, down 14% year on year, from 7.3 million boe/d in the first six months of the 2022 financial year. When it reported its full-year fiscal 2022 performance in December, Trafigura said lower traded oil volumes reflected the loss of long-term contracts for Russian oil due to sanctions, the reduced availability of hedging in derivatives markets, and a decision to focus on "higher-margin" opportunities.

Given the higher economic headwinds from inflation and interest rates this year, Trafigura said it will "maintain a sharp focus on credit risk amid a shortage of US dollars in some parts of the developing world."

Analysts at S&P Global Commodity Insights expect global oil prices to trend higher this year, with Dated Brent reaching the upper $80s in the third quarter, on the back of solid year-on-year oil demand growth of over 2 million b/d amid supply constraints from OPEC+ producers.

Looking further out, Trafigura's chief economic Saad Rahim said the sees a likely bottleneck of global crude supplies to feed expanding refining capacity in China and the Middle East due to the downturn in upstream spending in recent years.

"There will likely be a structural dearth of crude oil in the coming years to feed both these refineries and any future demand growth needed to meet the needs of a growing global population," Rahim said in the earnings statement. "This raises the prospect of higher prices and heightened volatility in the years ahead."