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The commodity sector traded lower for a third week, with the main market focus being the risk of an economic slowdown caused by runaway inflation and central banks stepping up their efforts to bring it under control .
Gold, which has been on the defensive for the past five weeks in response to stubbornly high US inflation driving up the dollar and US government bond yields, slumped below support-turned-resistance at $1680 as the market was overwhelmed by momentum and technical-driven selling related to the risk of a 1% US rate hike next week. In addition, the market continued to raise expectations for how high Fed funds will rise over the coming months.

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Crude oil traded lower in the week, partly driven by losses across fuel products such as gasoline and diesel, but remained within a recently lowered range, with demand concerns once again being the main focus more than offsetting potential supply challenges in the coming months. Growth and demand concerns, as well as the stronger dollar making the cost of fuel increasingly expensive around the world, remains the focus as the market prepares for another growth dampening rate hike from the US FOMC next week.

In addition, demand in China continues to linger after the IEA said the world's largest importer of oil was heading for its biggest annual drop in demand in more than three decades. Meanwhile, the US Department of Energy walked back on its SPR refill stance by saying that it didn’t include a strike price (that was said to be around $80/barrel) and it isn’t likely to occur until after fiscal 2023.

In Europe and increasingly also Asia, elevated prices for gas and power continue to attract substitution demand into fuel products like diesel and heating oil. In addition, the supply side will also be watching the impact of the EU embargo on Russian oil, which will begin impacting supply from December. The IEA in their latest monthly oil market report highlighted the embargo as their reason for lowering Russian supply in early 2023 by 1.9 million barrels per day – a development if not arrested by a peace deal or any other political development in Moscow could see the market turn increasingly tight again. In addition, the current lull in Chinese demand look set to reverse once lockdowns are lifted and, together with the risk of supply tightening, we see potential weakness in Q4 being replaced by renewed strength next year.

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