Iron ore and oil stocks fade as commodity prices extend declines

Wed 22 Jun 22, 3:36pm (AEST)
A cargo ship idles alongside an offshore rig as the sun sets in the background
Source: iStock

Key Points

  • Oil prices have slumped almost -10% in the last four sessions
  • Chinese iron ore futures extend losing streak, down 9 out of the last 10 sessions
  • Large cap iron ore and oil stocks have given back early gains of 1-5%

The S&P/ASX 200 faded into the afternoon as oil prices rolled over and the iron ore rout intensified.

Oil has been trying to stabilise around US$110 after a sharp 1-day selloff from US$120 last Friday. Prices resumed selling around 10:00 am AEST, now -4% around US$105.

Oil intraday and daily chart
Oil intraday (left) and daily (right) charts (Source: TradingView)

Oil is in a volatile place after last Friday, where traders are weighing up the prospects of an economic slowdown against tight supplies.

Chinese customs reported record oil imports for May last Friday, suggesting demand remains as strong as ever. However, Russian seaborne crude exports have remained unchanged in the face of sanctions, sitting around post-pandemic highs in the first half of June as China and India snap up discounted offers, according to S&P Global Platts.

Oil’s continued capitulation has wiped out most of the gains for names like Woodside (ASX: WDS), Beach Energy (ASX: BPT) and Santos (ASX: STO) that rallied between 3-5% in early trade.

Woodside Beach Energy Santos price chart
Woodside, Beach Energy and Santos intraday price chart

"The oil market remains too tight over the short-term and rising expectations over tougher sanctions with Russian crude should keep demand especially strong here," said Oanda senior market analyst, Ed Moya.

"WTI crude should easily be supported above the USD 100 level throughout the summer, which means any dips will be bought into," said Moya.

The iron ore rout continues to deepen, with futures down -4.3% on China's Dalian Commodity Exchange (DCE).

DCE futures
Chinese iron ore futures for September delivery (Source: Dalian Commodity Exchange)

DCE prices have only been positive just 1 out of the last 10 sessions.

This has erased the gains for iron ore majors BHP (ASX: BHP), Rio Tinto (ASX: RIO) and Fortescue (ASX: FMG), which were trading around 1-2% higher as the market opened.

While there isn't exactly any new concerning news for iron ore, the outlook remains weak amid China's demand recovery worries and property sector risks.

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Written By

Kerry Sun

Content Strategist

Kerry holds a Bachelor of Commerce from Monash University. He is an avid swing trader, focused on technical set ups and breakouts. Outside of writing and trading, Kerry is a big UFC fan, loves poker and training Muay Thai. Connect via LinkedIn or email.

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