Commodities: Base metal prices supported by PMI data, soft USD

Oil prices fell on Wednesday, as the US crude inventories rose by 6.8m barrels last week, compared with a rise of 900,000 barrels expected by analysts. This is the first build in eleven weeks.

The Energy Information Administration (EIA) also said that the US crude production exceeded 10m barrels per day for the first time since 1970 in November, pushing the US output to an all-time high.

OPEC countries pumped more oil in January as well, according to a Reuters survey, lifting their production slightly higher from an eight-month low.

But the same survey also suggested that OPEC and its allies’ devotion to reduce supply increased to 138% in January, from 137% a month earlier, although oil prices recovered to the highest levels since December 2014.

Energy prices rebounded modestly during the Asia session, as the weakness in the US dollar has certainly clouded some of the fundamental price action.

West Texas Intermediate futures traded up by 0.37% to $65.00 a barrel. Brent crude advanced 0.23% to $69.05 a barrel.

The Bloomberg industrial index was little changed on the back of a mixed bag of data in the overnight session.

Caixin China manufacturing PMI was unchanged at 51.5 in January, a touch higher than the 50-level which distinguishes growth from contraction.

Bloomberg Economists suggest that the similar trend in the official PMI “raises questions about the longevity of reflation trend that drove revival in industrial profits through 2017”. They point at lower export orders and downturn in industrial reflation as key risks to Chinese recovery.

“Optimism on China’s 2018 growth prospects remain high. One thing that could spoil the party – trade sanctions”, according to them.

The Caixin survey data suggested disruptions from the anti-pollution campaign starting to ease but there were signs in the data of a slight softening in demand, which Capital Economics said, "provide hints of what’s to come".

Elsewhere, the manufacturing activity in Japan expanded at the highest pace in almost four years, according to the latest PMI data. The purchasing manager index for manufacturers rose from 54.4 to 54.8 in January.

Meanwhile, expansion in Indian manufacturing sector slowed to 52.4 in January from 54.7 posted a month earlier.

Three-month copper futures gained 0.14% to $7,128 a ton on London Metal Exchange, three-month nickel eased 0.40% to $3,526 a ton.

Gold stabilised near $1,345 an ounce, after gaining $2 dollars to $1,347, then dropping $6 to $1,341 earlier in Asia.

“Further gains back above $1,350 would target the peak from last week at $1,366. Below $1,335, the $1,326 and $1,307 levels come into play” wrote Chris Beauchamp, market analyst at IG.

By Ipek Ozkardeskaya