Commodities: Brent plummets to fresh 11-year low

Oil markets endured another bearish session on Wednesday, with the Brent front-month futures contract falling to a fresh 11-year low as oversupply concerns continued to dominate market sentiment despite geopolitical flare-ups in the Middle East.

At 1633 GMT, Brent contract for February delivery was down 5.13% or $1.87 at $34.55 per barrel; the lowest on record since 30 June, 2004. Concurrently, WTI was down 4.45% or $1.60 at $34.37 per barrel.

A source close to shipping brokerage firms in Rotterdam, The Netherlands, told Sharecast that daily oil surplus flooding the market could be as high as 3.13m bpd, as onshore and offshore oil storage costs continue to climb.

Even a modest drop in US crude inventories could not stem the oil price decline with the country’s Energy Information Administration noting earlier in the session that stockpiles dropped by 5.1m barrels in the week ending 1 January.

The US Department of Energy's statistical arm also said that during the reference period, crude oil imports fell by 382,000 barrels per day in comparison to the prior week.

James Hughes, chief market analyst at GKFX, said, “This is a knock on affect from the likelihood that the geopolitical tensions between Saudi Arabia and Iran have put an end to hopes on a deal on OPEC oil production.

“If you then add this to the fact that we have had relentless bad news out of China, including the overnight currency slip, then the snow ball effect is in full swing. These issues have pushed WTI crude lower, and the near non-existent spread between Brent and WTI now means that Brent gets hit just as hard breaking key levels in tandem.”

However, gold futures rallied yet again marking a third successive session in positive territory as investors sought safe havens to park their cash with North Korea's Hydrogen bomb test adding to existing concerns over stability in the Middle East triggered by a spat between regional heavyweights Saudi Arabia and Iran.

COMEX gold contract for February delivery was up 1.10% or $11.90 to $1090.30 an ounce, while spot gold was 1.22% or $13.13 higher at $1090.81 and ounce. However, COMEX silver fell 0.11% or two cents to $13.96 an ounce, while spot platinum was down 1.55% or $13.75 at $874.55 an ounce.

Base metal futures fell across the London Metal Exchange board following further declines in Asia on persistent concerns over China. Caixin’s ‘unofficial’ China manufacturing sector purchasing managers’ index for December retreated from a reading of 48.6 for November to 48.2 in December. The median estimate from analysts was for a reading of 48.9.

Unsurprisingly, three-month delivery contracts of copper (down 0.5%), nickel (down 0.2%), lead (down 2.1%), zinc (down 1.7%) and tin (down 3.0%) headed lower prior to the LME close, but primary aluminium (up 0.4%) futures marginally rose.

Liz Grant, senior account executive at Sucden Financial, said, “LME metals were also mostly lower albeit in thin trading. Gold broke above $1085 which triggered a move to 1093 area as investors seek safe haven. Silver, which remains more closely aligned to the physical market, traded either side of $14.”

Finally, agricultural commodity futures were on a mixed patch in early trading calls stateside. CBOT corn (up 0.28%) and wheat (up 0.65%) contract saw gains, while ICE cotton (down 0.86%), cocoa (down 2.75%) and CME live cattle (down 0.73%) futures headed lower.