Commodities: Oil, base metals hammered over volatile session

Oil futures hit fresh record lows on Wednesday, while base metals took a pummelling at the hands of short-sellers over another volatile trading session.

At 1713 GMT, the Brent front-month futures contract was down 4.76% or $1.37 to $27.39 per barrel, while WTI fell further and faster by 6.89% or $1.96 to $26.50 per barrel, as both benchmarks traded at fresh 12-year lows.

With no end in sight to oversupply influenced short calls, the International Energy Agency opined overnight that the oil market was unlikely to balance over the course of 2016 and more pain for producers was on the horizon.

The agency also said global oil demand growth could be in the region of 1.2m barrels per day in 2016; close to OPEC’s lacklustre view of 1.26m bpd, and US Energy Information Administration’s prediction of 1.4m bpd.

James Hughes, chief market analyst at GKFX said, “Oil will not stay this low forever though and any move higher, however brief, will be met with exaggerated moves higher across the board.

“China is the other aspect that is dragging on markets as the world’s second largest oil consumer suffers from a huge slowdown. The China of old that was responsible for propping up the global economy is now gone, and a new that can barely support itself is in its place.”

Base metals also headed lower on the London Metal Exchange. At 1635 GMT, three-month delivery futures contracts of primary aluminium (down 1.6%), copper (down 1.2%), lead (down 1.6%), zinc (down 2.2%) and nickel (down 0.9%) had short-sellers walking all over them. However, tin futures avoided the broader sell-off heading higher by 0.6% benefitting from production cutbacks in China.

Wider market volatility sent investors scurrying for the safe haven comfort of precious metals with gold futures rallying. On the COMEX, the front-month gold contract posted a rise of 1.43% or $15.60 to $1,104.70 an ounce, while spot gold was 1.93% or $21.01 higher at $1,104.70 an ounce.

COMEX silver was broadly flat posting a mere 0.03% rise to $14.13 an ounce, while spot platinum fell 1.15% or $9.49 to $817.69 an ounce.

Liz Grant, senior account executive at Sucden Financial, said, “At the risk of encouraging suicidal tendencies – there was yet more doom and gloom in the markets with no signs of the cavalry appearing on the horizon anytime soon.

“Worries over China and the possible "contagion" effect drove sentiment and raw material producers were badly hurt. LME turnover was light, but prices held above the lows established earlier this week, despite being down on the day.”

Finally, agricultural commodity futures were firmly on negative turf. CBOT corn (down 0.27%), wheat (down 1.21%), ICE cocoa (down 4.64%), cotton (up 1.25%) and CME live cattle (down 2.09%) headed lower in early US trading calls.