Commodities: Oil futures register gains on Saudi comments

Oil futures began the week on a positive footing, as Saudi Arabia said on Monday it would work with other producers to limit oil market volatility.

"The kingdom (of Saudi Arabia) seeks to achieve stability in the oil markets and will always remain in contact with all main producers in an attempt to limit volatility and it welcomes any cooperative action," the Saudi cabinet said in a statement.

Saudi Arabia and fellow OPEC members Venezuela and Qatar, agreed with non-OPEC Russia this month to freeze output at January levels. However, Iran refused to join in while it takes advantage of the recent lifting of its international economic sanctions.

At 1702 GMT, the Brent front month futures contract was up 2.51% or 88 cents to $35.98 per barrel, while the WTI rose 2.29% or 75 cents to $33.53 per barrel. However, analysts remain unconvinced about the possibility of a coordinated OPEC and non-OPEC production freeze, and whether the move itself would have a tangible impact, if it were to materialise.

Analysts at Barclays said, “The recent output freeze talks are unlikely to have any immediate impact on market balances, given the producers who have agreed to freeze production (as well as those indicating willingness) are already producing close to their full capacity.

“We think what it does represent, however, is an exercise in building broader cooperation between producers, and thereby is likely to prove a litmus test for building trust, as Saudi Oil Minister Ali al-Naimi opined in Houston last week.”

Last week, Fitch Ratings lowered oil price assumptions it uses to rate energy companies, reflecting its view that prices were “increasingly unlikely” to recover this year viewing a coordinated effort to freeze production as challenging.

In a note to clients, the ratings agency said its new base case is for Brent and WTI oil prices to average $35 per barrel in 2016. It had previously expected oil to average $45. However, Fitch’s long-term base case price assumptions remain unchanged at $65.

Away from oil markets, precious metals saw a marginal recovery. The COMEX front-month gold futures contract was up $1.06% or $12.90 at $1,239.10 an ounce, while spot gold was up 0.73% or $8.94 to $1,232.40 an ounce.

COMEX silver rose 1.06% or 16 cents to $14.87 an ounce, and spot platinum headed 1.37% or $12.55 higher as well to $926.80 an ounce.

Headline base metal futures were higher across the London Metal Exchange board. At 1635 GMT, three-month futures contracts of nickel (up 0.2%), lead (up 1.8%), tin (up 0.2%) and primary aluminium (up 1.3%) headed higher, but the copper contract shed 0.5%.

Liz Grant, senior account executive at Sucden Financial, said, “Start of the new week saw "mixed" and "choppy" trading with moderate LME turnover. During the Asian session, prices opened unchanged but drifted lower as Far East equity markets lost ground once again. At 1000 GMT London, China’s central bank announced a reduction in the banks’ reserve rate ratio of 0.50 % which triggered short burst to the upside across the board.

“Gold made headway, trading back to $1230 area but silver, which lost ground through $15 on Friday. remained "soft", pegged back by the stronger dollar.”

Finally, agricultural commodity futures were on mixed turf. CBOT corn (down 0.56%) and ICE cotton (down 2.49%) futures headed lower. However, CBOT wheat (up 0.05%), ICE cocoa (up 2.22%) and CME live cattle (up 0.24%), headed higher in early trading calls stateside.