Commodities: Oil stages recovery in Europe, precious metals slip ahead of Fed decision

Oil benchmarks were staging a recovery back to the previous week’s levels in European trading on Wednesday, as the spread between Brent and WTI continued to narrow below $5 per barrel.

At 1139 BST, the Brent front month futures contract for August delivery was up 2.29% or $1.46 at $65.16 per barrel, while the WTI contract for July delivery was up $1.16 or 1.93% at $61.13 as the market waited for latest comments from the US Federal Reserve and its take on the health of the American economy.

The Fed is expected to paint a bullish picture, as doubts persist on the direction of economic growth in China.

That said, oil oversupply concerns will not dissipate for a while, according to Keisuke Sadamori, director of energy markets and security at the International Energy Agency.

Speaking at the World National Oil Companies Congress in London, the IEA expert and Japanese government official said: “We see plentiful supplies and a firmer dollar limiting a price spike. Despite easing from March and April’s highs, oil production growth [on an annualised basis] stood at a robust 3m barrels per day (bpd) split between OPEC and non-OPEC producers.”

The base metals market was seen responding in kind with no clear news of a Chinese economic stimulus. Three-month contracts of aluminium (down 0.2%), lead (down 0.7%) and zinc (down 0.8%) continued extending overnight lows on the London Metal Exchange, with nickel and zinc deeply in the red shedding 1.5% in both cases.

Dieter Helm, author and fellow in economics at New College, University of Oxford, expressed deep scepticism at the NOC Congress about China’s current growth as well as future prospects.

“I genuinely believe that Chinese economic growth is in decline and see it averaging 3%," he said.

"Economic transition, which China was witnessing at the turn of century with burgeoning growth, had to end. However, China’s fallback to the norm would much more painful, especially for regional commodities exporters such as Australia.”

Helm said there was already clear evidence of a Chinese slowdown. “Dispatch of commodities cargoes – from iron ore to natural gas – are not consistent with an economy that’s growing at 7% as we are told. With that, the so-called 'commodities supercycle' is well and truly over.”

Switching to precious metals, COMEX gold for August delivery was down 0.23% or $2.70 at $1,178.20 an ounce, while COMEX sliver was down 0.16% or 0.02% at $15.94 an ounce.

Additionally spot gold (down 0.26%) and platinum (0.53%) were also in the red, indicative of traders' expectations for a reasonably confident assessment of the US economy when the Fed makes a statement later on Wednesday after the conclusion of its monetary policy committee meeting.

On the agricultural commodities front, CBOT corn (up 1.25%) and wheat (1.87%) were firmly in the green with CME live cattle (broadly flat), ICE cocoa (down 0.59%) and cotton (down 0.26%) lagging behind.