Commodities: Citi, Goldman sound cautious note on oil futures

Crude oil futures buoyed the commodities space as reports that Iran was warming to the idea of an oil output freeze by several of the world's major producers led to an intra-day reversal in prices.

As of 18:47 BST front month Brent crude futures were rising 1.6% to $49.96 per barrel on the ICE.

Late in the session, Reuters reported that, according to sources from inside the Organisation for Petroleum Exporting Countries and the oil industry, Tehran had been sending "positive signals" that it might support a joint decision to freeze production at then current output levels.

Nevertheless, just hours before Goldman Sachs sent a report to clients cautioning that the risk existed that improved output from Nigeria, Iraq or Libya could yet upset the proverbial 'apple cart' in the form of the recent fragile recovery in prices.

“Importantly, each country has the potential to move the global oil market back into surplus given our modest 230 kb/d expected deficit in 2H16. As a result, we reiterate our view that the oil price and fundamental recovery remains fragile,” Goldman said.

"While Citi remains structurally positive crude, we, like many investors, have an increasingly either/or attitude. Citi is still looking to Brent prices averaging $65 by 4Q’17, but we have shifted the balance between a more bullish and more bearish view toward lower prices," analysts at Citi chipped on.

Natural gas futures on NYMEX were also moving higher, with the September 2016 contract adding 2.24% to trade at $2.74/MMBtu.

Heating oil futures were also to be seen higher, rising 1.14% to $1.5033 per gallon.

Bulk metals prices on the LME were mixed, with three-month copper losing 0.6% to $4,730.00 by the close, while the similarly-dated lead contract dipped 0.2%.

Primary aluminium, zinc, nickel and tin on the other hand all closed higher.

"Bulk commodities have been the darlings of the commodity sector not just for the quarter but for the year-to-date. Yet don’t expect the strength to last," Citi said.

Overnight, iron ore futures on the Dalian Commodity Exchange hit a two-year high amid reports that steel mills were restocking.

Citi's commodities team sounded a more positive note on palladium, platinum, sugar and coffee.

December 2016 corn futures were 1.24% lower in CBoT trading at $3.3825 per bushel.

"Robust US yields are putting downward pressure on corn and soybeans for now, but indicating higher prices in 2017/18," Citi said.

From a bird's eye view, Bloomberg's commodity index was 0.45% higher at 86.06 as of 18:44 BST as the US dollar spot index slipped 0.09% to 94.44.