Commodities: Oil, base metals plunge in dire European session

Oil and base metals futures plunged in Europe on Monday, extending losses from the Asian session as dire Chinese data hit the commodities market hard.

China’s Caixin/Markit manufacturing Purchasing Manager’s Index (PMI) came in at 47.8 – its lowest level since July 2013 – stoking fears yet again about the country’s economy cooling off, with no signs of a holistic economic stimulus from Beijing in sight.

The oil market, already grappling with oversupply issues, registered sharp declines testing six-month lows. At 1538 BST, the Brent futures contract for September delivery was down 3.54% or $1.85 at $50.36 a barrel. Concurrently, the WTI was lower by 2.31% or $1.09 at $46.03 a barrel.

Atop concerns over China, the prevailing oversupply sentiment was exasperated further with UK’s preliminary data pointing to a 2.5% increase in oil production over the first half of 2015. According to industry lobby group Oil & Gas UK, if the trend holds up until the end of the year, it would mark the first year of an increase in British production since 1999-2000.

Last week, OPEC Secretary General Abdulla Salem El-Badri said the oil producers' collective had no plans to cut its output in a bid to support the prices, choosing to maintain market share instead. El-Badri added that he was "not worried about additional Iranian oil coming on to the market."

However, analysts at Barclays said low spot prices and enhanced competitiveness of North Sea and West African grades had spurred Asian buying activity. "The current low price environment provides a catalyst for both demand and supply to adjust faster, leading us to our conviction that the decline in calendar year 2016 oil prices has been overdone.”

Meanwhile, the base metals market took yet another turn for the worse on news from China. Past the midway point in trading on the London Metal Exchange, three-month delivery contracts of primary aluminium (down 1.2%), copper (down 0.7%), lead (down 0.8%), nickel (down 1.4%), tin (down 1.7%) and zinc (down 1.2%) were trading firmly lower.

Precious metals remained lacklustre with COMEX gold for December delivery down 0.31% or $3.40 at $1091.70 an ounce, while spot gold was 0.38% or $4.13 lower at $1091.67 an ounce. Concurrently, COMEX silver for September delivery was trading 0.61% or 9 cents lower at $14.66 an ounce, with spot platinum at $973.03 an ounce, down $10.35 or 1.05%.

Finally, agriculture futures mirrored the wider commodities market trend with CBOT corn (down 0.66%), wheat (down 1.15%), ICE cocoa (down 0.81%) and cotton (down (0.70%) futures contracts trading lower. However, CME live cattle futures bucked the trend, rising $2 or 1.37% to $147.93 per pound, on higher demand sentiment as the US Labor Day holiday weekend approaches.