Commodities: Oil markets on shaky ground, softer dollar supports gold

Oil markets began Monday trading on shaky ground, initially rising on recent terrorist strikes in Saudi Arabia, before shedding short-lived gains as traders revisited oversupply permutations with OPEC set for its bi-annual session of oil ministers on Friday.

At 07:27 BST, the Brent front month futures contract was trading down 41 cents or 0.63% at $65.15 a barrel, while the WTI was down 50 cents or 0.83% at 59.80 a barrel. Both benchmarks initially rose, following Friday’s lower US oil rig count and two terrorist strikes in Saudi Arabia’s eastern province.

The second Saudi attack took place in in Dammam, within proximity of both the headquarters of national oil company Saudi Aramco and the Ras Tanura oil terminal and refinery. However, the geopolitical spike did not last, as focus returned to supply-side scenarios which still point to the market being oversupplied.

OPEC is widely expected to maintain its official production quota at 30m barrels per day (bpd) on Friday, although recent data has suggested the cartel's output is close to 31m bpd. Analysts at Barclays noted: “When OPEC decided not to cut output in November, Saudi Arabia outlined its strategy to moderate runaway growth from high-cost non-OPEC suppliers, as well as stimulate global oil demand.

“The kingdom seems to be on track to achieve these goals. However, further swift gains in the oil price threaten to derail its plan. With economic growth data in key consumption centres still lacklustre, higher prices could still weigh on oil demand growth, while non-OPEC suppliers with a compressed cost curve (more elastic) could add more supply.”

A softer dollar and continuation of the Greek crisis helped precious metals. Gold was trading marginally in green territory, fetching $1,190.70 an ounce up 90 cents or 0.08%. A spot ounce of gold was trading at $1,188.47 down $2.11 or 0.18%. Additionally, the COMEX silver contract was down three cents or 0.16% at $16.68 an ounce.

Meanwhile, Chinese manufacturing sector purchasing managers' (PMI) and the country’s increased production of selected base metals impacted trading sentiment in the wider base metals market.

The HSBC/Markit Chinese manufacturing sector PMI survey improved in May to a reading of 49.2 from 48.9 in the month before, but remained below the 50-point threshold which marks growth in levels of activity.

As economists' median forecast had been for a reading of 49.2, it improved the fortunes of the copper market with hopes of a Chinese economic stimulus continuing to provide a floor. The three-month copper contract on the London Metal Exchange rose 0.4% to $6,040 a tonne on Monday, partially reversing the 1.3% slide in price on Friday.

However, going the other way, aluminium ended the month of May 9.6% lower; its biggest monthly dip since October 2012, largely down to Chinese output of the commodity rising to 2.59 million tonnes in April. Alongside aluminium, tin, zinc and nickel three-month contracts also ended May in the red with no immediate improvement in prospects as the current month's trading commenced.

On the agricultural commodities front, CBOT corn (down 0.43%), wheat (down 0.05%) and CME live cattle (down 0.97%) contracts were all in the red. ICE cotton was trading up 0.31%, but ICE cocoa contract was down 1.06% making it the biggest faller in early agri-trading.