Commodities: Oil heads sideways, metals continue recovery

Oil futures headed sideways on Tuesday, while most metal futures maintained upward momentum in European trading.

At 1700 GMT, the Brent front-month futures contract was broadly flat, trading a mere 0.10% or five cents lower at $44.56 per barrel. Meanwhile, WTI was 0.10% or four cents higher at $41.69 per barrel, as both benchmarks saw flat trading with all eyes on the OPEC Ministers’ Summit in Vienna, Austria on 4 December.

Despite hedging for the element of surprise, much of the market still expects the oil producers’ cartel to maintain its current official production level at 30m barrels per day (bpd), which it is already capping at 31.88m bpd.

Furthermore, many commentators see little or no prospect of a return to highs seen over the first half of 2014. Speaking at Fitch Ratings’ London Energy Seminar, Alex Griffiths, Head of Natural Resources and Commodities at the ratings agency said oil and gas majors were learning to cope with $55/bbl oil prices.

“But there is a fair degree of uncertainty in the market with major sector players coping (or learning to cope) with differing levels of success. Our new assumption for ratings purposes, or price deck, is for Brent to average $55/bbl in 2016 and $65/bbl in 2017, with WTI averaging $50/bbl in 2016, rising to $60/bbl in 2017.”

Also speaking at the same event, Tim Barker, Head of Credit Research at Old Mutual Global Investors, said, “There are plenty variables, and it is become increasingly hard to predict the rate of decline of US production. All things considered, I see nothing on the horizon which convinces me that oil will shoot above $60/bbl.”

Julian Mylchreest, Global Head of Energy at Bank of America Merrill Lynch, added the direction of travel would depend on how fast oil production would fall next year, but agreed with Barker that the uptick was unlikely to exceed $60/bbl, and “perhaps $70 tops.”

Mutlu Guner, Executive Director at Morgan Stanley, said, “I see the oil and gas business already pulling away from the $100/bbl default thinking. Capital expenditure cuts within the industry will trigger production declines, but we won’t see a dramatic rise in the oil price, as supply correction will take time. I too am inclined to think Brent will be in the region of $60/bbl come the end of the year.”

Away from the oil market, selected metal futures registered gains in late afternoon trading in Europe. At 1635 GMT, three-month delivery contracts of lead (up 0.7%), nickel (up 0.3%) and primary aluminium (up 1.1%) saw decent upticks on the London Metal Exchange.

The copper contract, still at historic lows, also managed a modest 0.6% uptick to $4,622.00 per metric tonne as Chinese copper producers agreed over the weekend to cut refined production by 200,000 metric tonne in 2016. However, zinc (broadly flat) and tin (down 0.2%) futures did not reflect broader positivity on the LME.

Liz Grant, Senior Account Executive at Sucden Financial, said, “The LME session was generally routine and in low to moderate turnover, but the first day of the new month was busy as clients rushed to book December average contracts, particularly forward selling for copper.

“There was slight easing in the copper spreads as dealers gave back some length to the market from their cards against a lack of December short covering so far. Outright three-month business was either side of $4,600-level once again. For the other metals, most traded in fairly narrow ranges on Tuesday but remained in positive territory on the day.”

Precious metals also saw marginal upticks with COMEX gold futures up 0.09% or $1.20 to $1,064.10 an ounce, while spot gold was 0.06% or 69 cents higher at $1,065.46 an ounce. COMEX silver was up 0.06% or a cent to $14.10 an ounce, while spot platinum was up 0.51% or $4.28 to $835.58 an ounce.

Finally, agricultural commodity futures were largely on positive turf in early trading stateside. CBOT corn (up 0.47%), ICE cocoa (up 0.06%) and cotton (up 1.28%) were trading higher. However, CME live cattle (down 0.47%) and CBOT wheat (down 0.21%) futures were trading lower.