Commodities: Brent claws back premium to WTI, IEA flags glut concerns

Oil futures remained at historic lows on Tuesday, with US benchmark WTI losing its premium to Brent, as an International Energy Agency report noted that prospects for the market balancing out in 2016 appear to be grim.

In its latest assessment of the market, the IEA said demand growth could be in the region of 1.2m barrels per day in 2016; which was close to OPEC’s view of 1.26m bpd, and US Energy Information Administration’s prediction of 1.4 mn bpd.

Meanwhile, Iran is expected to raise its exports by 500,000 bpd within the first few months of the sanctions being lifted. At 1629 GMT, the Brent front-month futures contract was up 2.87% or 82 cents to $29.37 per barrel, while WTI fell 1.12% or 33 cents to $29.09 per barrel, shedding its premium to the global proxy benchmark after overnight gains.

Yann Quelenn, market strategist at Swissquote, said, “The medium-term technical structure remains clearly negative in a context of oil oversupply and we expect to see continued weakness. Oil keeps riding the downtrend channel.

“In the long-term, crude oil is on a sharp decline and is of course no showing any signs of recovery. Crude oil is holding way below its 200-Day Moving Average (setting up at around $47). There are currently no signs that a reverse trend may happen.”

In the precious metals market, COMEX gold futures contract posted a dip of 0.48% or $5.20 to $1,085.50 an ounce, while spot gold was 0.25% or $2.73 lower at $1,086.95 an ounce.

Away from gold, COMEX silver rose 1.11% or 15 cents to $14.05 an ounce and spot platinum rose 1.19% or $9.80 to $830.40 an ounce.

Elsewhere, base metals were also on a mixed footing on the London Metal Exchange. The three-month delivery futures contracts of copper (up 0.8%), lead (up 1.5%), zinc (up 1.5%) and nickel (up 0.3%) were trading higher, with tin (down 0.3%) and primary aluminium (broadly flat) heading in the opposite direction.

Steve Hardcastle, head of client services, Sucden Financial, said, “The new year has so far been dominated by the fall out in Chinese equities and the consequent short selling of other asset classes as a proxy hedge.

“Copper always grabs base metal headlines. Proxy hedge selling has dominated this year, not to mention the impending Chinese New Year. Production cuts are now starting to take effect and the supply/demand balance is tightening. Expect low copper prices, possibly spiking down to $4,200 but recovering later in the quarter.”

Finally, agricultural commodity futures were firmly on positive turf in early trading stateside. CBOT corn (up 1.38%), wheat (up 0.63%), ICE cocoa (up 0.52%), cotton (up 1.22%) and CME live cattle (up 1.73%) climbed higher in early calls.