Commodities: Oil reverts to seasonal high, gold back above $1200

Oil benchmarks reverted to seasonal highs with market concerns about oversupply easing marginally, as US inventories retreated from record highs and data indicated the number of operational rigs in the US was down significantly.

At 07:29 BST on Thursday, the WTI front month contract, which posted solid gains overnight, was trading marginally down 19 cents or 0.34% at $56.20 per barrel. Brent was also trading down 22 cents or 0.35% at $63.10, after it finally climbed above the $60-mark.

Joshua Mahony, market analyst, IG, said: “The WTI's attempts to break above the $55 breakout marker were helped no end by yet another entirely unexpected shock in US crude oil inventories.”

“Current price levels bring some credibility to the continued story of lowered investment within the US oil and gas sector, which was largely put to bed by last week's abnormally high inventories number.”

Gold extended gains above $1,200 an ounce in early Asian trading, after rising overnight on a weaker dollar and lukewarm US industrial output data. COMEX gold for Jun delivery recovered ground to $1,204.70 an ounce, up $3.40 or 0.28%, while spot prices also saw an uptick to $1204.74, up $2.16 or 0.18%. Additionally, COMEX silver rose to $16.37 an ounce, up 0.21 cents or 1.29%.

Meanwhile, copper markets saw a continuation of Chilean mining disruptions and concerns over Chinese demand counterbalance each other, as the three month London Metals Exchange contract ended trading on Wednesday on a broadly flat note at $5937 per tonne.

The iron ore price continues to average in $46-47 per tonne, with Moody’s predicting a decline below $40. Additionally, Goldman Sachs has cut its 2015 iron ore price estimate by 18% to $52 per tonne. The global bank forecast $44 in 2016 and $40 in 2017 and 2018, down 29% to 33% from previous estimates.

Goldman also said while the big three mining firms – Vale, Rio Tinto and BHP Billiton – can handle the iron ore price slump, smaller miners could go out of business. Away from iron ore, a new report by Citigroup opined that many commodities have found near-term support at current levels, but the support could be “short-lived”.

Citi analysts also felt that crude oil had not bottomed just yet, describing the oil price slump as the “centre of the collapse” in commodity prices. Demand for crude oil will be seasonably low over the second quarter due to refinery turnarounds. Furthermore, investment outflows from physically-backed crude oil ETFs will likely push crude prices lower, the broker's analysts added.

Elsewhere, CBOT corn and wheat contracts and ICE cotton contract for July delivery were trading up, but ICE cocoa contract slipped in to the red overnight.