Commodities: Oil market sees wild swings, metals stage recovery

The oil market shed overnight gains on Tuesday, as disappointing manufacturing data from China and profit-taking by traders sent futures lower, while industrial and precious metals traded higher.

The official purchasing managers’ index for Chinese manufacturing activity fell to 49.7 in August, from the previous month’s reading of 50. A figure below 50 signals a contraction in the sector while a level above that indicates expansion.

The data sent oil benchmarks into negative territory in Asia, a trend that continued for much of the European session largely negating Monday’s gains. At 1610 BST, the Brent front month futures contract was down 6.61% or $3.58 at $50.57 a barrel, while the WTI was 6.40% or $3.15 lower at $46.05.

However, trades placed suggested profit-taking after three sessions of gains were also behind the decline. Both Brent and WTI crude spiked by over 8 percent on Monday. Meanwhile, the latest US Energy Information Administration (EIA) report indicated the country’s oil production peaked at just above 9.6m barrels per day (bpd) in April, before falling by more than 300,000 bpd over the following two months.

Yet, the global market remains heavily oversupplied by 1.1-1.3m bpd of excess supply. Analysts at HSBC said it may take some time for the market to rebalance fully. “The current price levels look completely unsustainable to us and a combination of OPEC economics and marginal costs of production point to longer-term prices being significantly higher.”

The bank is now assuming a Brent average of $55.4 per barrel in 2015, rising to $60 in 2016 and $70-80 for 2017/18.

Elsewhere, industrial metals saw a calmer European session. Past the midway point in trading on the London Metal Exchange, three-month delivery contracts of primary aluminium (up 1.9%), copper (up 0.2%), lead (broadly flat), nickel (up 1%), tin (broadly flat) and zinc (up 1.7%) were all moderately in positive territory.

As chances of a September US interest rate hike seemed less than certain, precious metals remained in positive territory led higher by gold. Over the weekend Deputy US Federal Reserve Chairman Stanley Fisher indicated that the central bank is looking to increase rates as soon as possible as there is good reason to suggest inflation would rise towards the 2% target.

However, Atlanta Fed’s Dennis Lockhart softened his earlier rhetoric about a September rate rise hinting he may be having second thoughts given recent market volatility as conflicting soundbites continued to be the order of the day.

COMEX gold for December delivery was up 0.58% or $6.60 at $1,139 an ounce while COMEX silver was broadly flat at $14.59 an ounce up a cent. Spot platinum was also broadly flat at $1009.35, down five cents.

Finally, major agricultural commodities futures painted a mixed picture. CBOT wheat (up 1.13%) and ICE cocoa (up 1.19%) contracts were trading higher. However, CBOT corn (down 0.93%), ICE cotton (down 0.71%) and CME live cattle (down 1.57%) were firmly in negative territory.