Commodities: Oil futures extend recovery run, metals head lower

Oil futures registered further upticks on Tuesday, extending gains made late in the previous session, even though Brent continues to lurk near seven-year lows.

At 1651 GMT, the Brent front-month futures contract was up 1.56% or 59 cents at $38.51 per barrel, still close to price levels last seen in December 2008. Concurrently, WTI was up 2.15% or 78 cents at $37.09 per barrel.

Earlier in the session, Moody's cut its oil price assumption for 2016 due to the threat of prolonged oversupply, lowering Brent estimates to average $43 from $53 per barrel next year, and WTI to $40 from $48 per barrel.

The ratings agency said continued high levels of oil production by global producers were significantly exceeding demand growth, predicting the supply-demand equilibrium will only be reached by the end of the decade at around $63 per barrel for Brent.

With the oil market already saturated and facing the imminent return of Iranian crude, limits of on-shore storage capacity look set to be tested in the first half of 2016, according to Edward Morse, senior analyst at Citi.

If onshore storage approaches the top of the tanks, Brent futures may need to fall to approximately $30 per barrel, he added.

Away from the oil market, most metal futures headed lower during late afternoon trading in Europe. At 1635 GMT, three-month delivery contracts of primary aluminium (down 1.3%), tin (down 0.3%), lead (down 0.4%), nickel (down 0.9%) and zinc (down 2.2%) were firmly in negative territory on the London Metal Exchange.

Copper contract also remained under pressure trading down 2.4% at $4,569.00 per metric tonne. Meanwhile, the precious metal complex felt the heat with traders pricing in a US interest rate hike.

COMEX gold futures contract was down by another 0.32% or $3.40 to $1,060.00 an ounce, while spot gold was 0.50% or $5.33 higher at $1,065.19 an ounce. COMEX silver was broadly flat, up 0.11% or two cents, at $13.71 an ounce; however spot platinum showed resistance with a rise of 0.81% or $6.90 to $855.25 an ounce.

Liz Grant, senior account executive at Sucden Financial, said, “LME prices headed downwards again to test the lower end of the recent ranges. With the US Federal Reserve meeting tomorrow, the market has factored in a 75% chance of a rate hike and after the weakness seen on Monday, short covering ahead of the Fed saw values in the major equity indices rally sharply while gold prices moved lower to test support at $1,060 levels.”

Finally, agricultural commodity futures were firmly on negative turf in early trading stateside. CBOT corn (down 0.59%), wheat (down 0.07%), ICE cocoa (down 1.07%) and cotton (down 0.43%) futures were all in the red.