Commodities: Oil and gold up, cotton market strengthens

Crude oil benchmarks were up marginally as speculation over US supply-demand scenarios and an uptick in economic activity across key importing nations lent support to trading in Asia.

At 07:40 BST on Monday, the WTI front month contract was broadly flat at $56,97 per barrel up a few cents, while Brent was trading up 17 cents or 0.26% at $65.11, retreating from the year-highs notched up last week.

Speculation continues about US shale production tailing off as the latest Baker-Hughes survey noted that the number of operational rigs in the country fell by 31 last week to 703. The figure was the lowest on record since October 2010, and marked the 20th straight week of declines.

Minor risk premium continues to arrive from Yemen, as Saudi Arabia resumed its air strike campaign against Houthi rebels on Friday, renewing concerns over regional routing of oil shipments. Meanwhile, expectations of a rise in US and Chinese demand continues to support oil prices.

However, Kevin Norrish, analyst at Barclays, said sustaining the oil price at current levels would require firmer demand and a tangible supply response. “The cart is moving ahead of the horse, and we take a cautious view on further price appreciation over the near-term. There are several singular sources of demand strength but little evidence to suggest that a broad pickup in consumption is occurring.”

“On the supply side, two industry-recognised forecasts have been released in the last month that show net shale growth can materialize in the $60-70 range,” Norrish added.

Gold was also trading up in Asia with all eyes on the conclusion of the US Federal Reserve's two-day monetary policy meeting on Wednesday, which could give further indication on how soon it might raise interest rates.

COMEX Gold for June delivery was up 0.66% or $7.70 to $1,182.70 an ounce, while spot price for the precious metal was up $4.18 or 0.35% at $1,183.18. Elsewhere, COMEX Silver for July delivery was trading at $15.88 up 20 cents or 1.28%.

Last Friday's session saw gold at its lowest level in nearly five weeks, as equity markets rallied to trade near all-time highs, lessening the appeal of the precious metal.

Elsewhere, the copper market continued to strengthen on speculation that China will introduce further economic stimulus to boost activity amid lackluster growth. The LME copper three-month contract ended Friday up 1.0% at $6036 per tonne.

Meanwhile, on the agricultural commodities front, cotton seems to be providing the recurring story of the market after a US government report indicated a surge in overseas demand for American cotton, as Australian production fell by half (compared to last year) and Brazil continues to suffer from production quality issues well into the current trading cycle. Indian cotton too is off limits for the moment owing to the country's internal regulatory permutations.

As a result prices for July cotton rose by nearly 5% during the week ending Friday, as US cotton was seen finding its way in greater volumes to the garment manufacturing hubs of China, Vietnam and Cambodia. Total US exports are well on track to meet industry estimates of 10.7 million bales [1 bale = 500lb] in the year ending July 31, the US Department of Agriculture (USDA) said.

ICE cotton was trading up 46 cents of 0.69% at $66.80 per pound. Continuing with agricultural commodities, CBOT corn was trading in the red, while CBOT Wheat, ICE Cocoa contracts were in the green.