Commodities: Demand concerns drive oil lower, gold continues to recover as copper falls

Overnight reports of a decline in US crude oil inventories failed to support market benchmarks on Thursday as concerns over weaker demand sent prices lower in Asia.

At 7:11 BST, the WTI front-month futures contract was fetching $60.31 per barrel down 19 cents or 0.31% while Brent was trading down 18 cents or 0.27% at $66.63. Late on Wednesday, the US Energy Information Administration (EIA) said the country’s crude stockpiles declined by 2.2m barrels in the week ending 8 May.

The decline was well above market expectations for a 250,000 barrel dip. Furthermore, it was the second successive week of declines, coming after four months of increasing stockpiles.

Yet, total stocked volume still came in at 484.8m barrels; the highest on record for this time of year in nearly 80 years. Concurrently, US oil production came in at 9.37m barrels per day up 5,000 on last count.

Analysts see demand concerns weighing on the oil markets, especially as China continues to send out mixed macroeconomic signals, including a dip in its investment growth rate to a 15-year record low.

Furthermore, while the US is in its so-called “driving season”, refineries were operating at 91.2% of capacity, down from 93% the previous week, according to the EIA.

Joshua Mahony, market analyst at IG, said: “The second consecutive fall in US oil inventories did little to support the price of crude, with both WTI and Brent selling off in response. The resurgence seen over the past two days appears to be waning and given the apparent inability to punch into a new 2015 high, I believe we have seen the end of this bull run in crude oil.

"While US inventories are marginally declining, the overall stockpiles are near record highs and once that oil is released onto the maket, there is only one way for the price to go. Perhaps oil stockpiles are falling due to the willingness of producers to sell at this price, rather than due to a notable fall in output.”

Driven on by a weaker dollar, gold prices rose well above $1,200 an ounce to a five-week overnight high, just as the dollar hit a three-month low on disappointing US employment data and unchanged retail sales picture for April. At one point overnight, gold spiked by over 2.2% to 1,218.20 an ounce before falling.

In Asian trading, the front month gold futures contract was down $3.60 or 0.30% to $1,214.60 an ounce. Concurrently, spot gold was trading at $1,218.33 up $2.58 or 0.21%. The COMEX silver contract was also enjoying a good session up 4% or 66 cents at $17.19 an ounce.

Weaker Chinese data knocked the wind out of the recent base metals rally as well, with copper, zinc, tin and nickel three-month contracts on the London Metal Exchange ending Wednesday in the red. In a far cry from its recent high of $6,459 per tonne, the copper contract ended the overnight session down 0.7% or $42 at $6392.

On the agricultural commodities front, ICE cotton and cocoa contract, CME cattle and CBOT wheat were all in the green, while CBOT corn was marginally down. CBOT soybean futures contract also staged a recovery overnight following declines earlier in the week driven by oversupply concerns.