Commodities: Oil, gold recover on weaker dollar, soybean futures plummet

Oil markets began broadly in the green on Wednesday, building further momentum from overnight gains in the US.

At 07:02 BST, the Brent front month oil futures contract was trading up 48 cents or 0.72% at $67.34 per barrel while the WTI was up 1% or 61 cents at $61.36 per barrel. The latter benchmark returned back above the $60 level as a weaker dollar helped boost global oil prices, with wider market fundamentals remaining broadly unchanged.

All eyes would be on the US Department of Energy (DoE) crude stockpiles report for the week to 8 May, expected later on in the trading session. Last week, the DoE reported its first decline in crude-oil stockpiles in 16 weeks, but at 487m barrels, levels remain at their highest on record for this time of the year.

Analysts are expecting another decline as investors remain cautious on oversupply scenarios. On Tuesday, OPEC said it had pumped 30.93m barrels per day in April, and expects a higher take-up of its crude oil over the upcoming two quarters. The cartel also denied a Wall Street Journal report citing it, saying a $100 oil price was not on the cards in the next decade.

Chris Beauchamp, senior market analyst at IG, said: “OPEC tends not to lower itself to such matters as denying press reports, but it did just that overnight, rubbishing a report that indicated $100 a barrel oil prices are not on the cards in the next decade and that the reintroduction of production quotas is being considered.”

“Quotas would perhaps provide a temporary balm, but the denunciation of bleak predictions where prices are concerned was enough to send crude prices moving higher again. After the latest batch of encouraging data sterling bulls took the opportunity to push the currency higher against the dollar, but caution is beginning to take over as thoughts turn to Wednesday’s Bank of England Inflation Report.”

Buy orders came in above the $1.56 level, but Beauchamp reckons with such big gains over the past few days, the pound is looking vulnerable should the Bank of England be more dovish than anticipated.

Nonetheless, a weaker dollar was unquestionably supporting the precious metals market after a tepid few sessions.

Furthermore, gold was aided by sharp declines in the European stock markets with investors flocking to the glittery metal to hedge against risk.

At one point overnight, spot gold soared to a session high of $1,196.60 an ounce while US gold futures for June delivery settled up $9.40 at $1,192.60 an ounce. Early trading on Wednesday was more tempered with gold broadly flat at $1,191.40 an ounce, down by 0.08% or a dollar. COMEX silver was also broadly flat, up a mere cent or 0.07% at $16.54 an ounce.

The weaker dollar and higher oil prices also strengthened copper markets, as the London Metal Exchange’s three-month contract for the base metal hit a one-week high as investors seek further clues on the strength of demand from China. Benchmark copper ended closed on Tuesday at $6,440 per tonne by over 1%. Zinc contract was up by 1% while nickel slipped by 0.4%.

Switching to agricultural commodities, CBOT soybean futures fell by almost 2% following a US Department of Agriculture projection of a rise in domestic stocks of 500m bushels by the end of the 2015-16 year; a nine-year high were it to be realised.

July soybeans future contract ultimately settled down 18.5 cent at $9.555 per bushel at close of trading on Tuesday. Elsewhere, CBOT corn contract was in the red, while wheat contract was up. In Europe, the ICE cocoa and cotton contracts were both in the green.