Commodities: Oil futures tumble on Chinese data, gold holds firm

Oil futures endured another volatile day on Monday, while a further round of lacklustre US data saw gold extend gains for much of the Asian and European trading session propped up by safe haven demand.

As conflicting market chatter about possible oil production cuts continued, data from China flattered to deceive yet again. The private, unofficial measure of Chinese manufacturing - the Caixin PMI - edged higher to 48.4 from 48.2 in December, though with a figure below 50 that still indicated a contraction.

The figures sent both oil benchmarks lower for much of the trading day. At 1642 GMT, the Brent front-month oil futures contract was down 3.61% or $1.30 to $34.69 per barrel, while WTI was down 1.63% or three cents to $31.19 per barrel.

Analysts at Barclays said, “Earnings season has begun, which should provide a guideline for how US oil and gas production will fare in the current low price environment. Producers continue to shore up finances through divestitures and dividend cuts, among other things.

“Headwinds are mounting for US production as hedges roll off, credit redeterminations near, and $30 oil and $2.30 gas begin to take their toll on producer cash flow. We forecast US crude oil production to average 9.0m barrels per day in 2016, down 460,000 barrels per day.”

Headline base metal futures were largely in negative territory on the London Metal Exchange at 1635 GMT. Three-month futures contracts of copper (down 0.7%), nickel (down 1.8%), tin (down 0.1%) and zinc (down 0.2%) headed lower, but lead (up 0.2%) headed marginally higher.

Liz Grant, senior account executive at Sucden Financial, said disappointing data in both China and the US, together with a slide in crude oil prices put further pressure on the markets.

“LME metals were in broad retreat early on but managed to hold at key technical support areas. Copper flirted with $4,500 area and nickel tested $8,500 while aluminium came back to test $1,500. In the case of tin, the Chinese government denied reports from last week that it had made a decision to support domestic tin producers and the price remained pegged below $15,000.”

Precious metals saw safe haven demand uptick yet again as tepid US data sent expectations for another rate hike by the Federal Reserve lower. Data from the US Commerce Department showed the country’s construction spending nudged up 0.1% to $1.12trn compared with a downwardly-revised 0.6% decline the previous month, missing expectations for a 0.6% increase.

Spending on private construction was down 0.6% to a seasonally-adjusted annual rate of $824bn from $828.8bn in November. Residential construction was at a seasonally adjusted annual rate of $429.6bn in December, up 0.9 percent from November’s $425.8bn.

Concurrently, the Institute for Supply Management’s US manufacturing sector purchasing managers’ index edged higher from a reading of 48.0 for the month of December to 48.2. However, it too was less than the reading of 48.4 which economists had pencilled in.

On the COMEX, the front-month gold futures contract was up 0.73% or $8.20 to $1,124.60 an ounce, while spot gold was 0.75% or $8.34 higher at $1,126.55 an ounce. COMEX silver rose 0.44% or six cents to $14.31 an ounce, while spot platinum rose 0.10% or $1.00 to $872.35 an ounce.

Finally, agricultural commodity futures were on mixed turf. CBOT corn (down 0.54%), wheat (down 1.25%) and CME live cattle (down 0.39%) futures headed lower. However, ICE cocoa (up 3.91%) and cotton (up 1.21%) headed higher in early trading calls stateside.