Commodities: Oil market turmoil continues as WTI falls to 12-year low

Oil markets endured another bearish session on Thursday, with the WTI front-month futures contract falling to a 12-year low as concerns over China's economy and crude oversupply continued to dominate market discourse.

At 1657 GMT, WTI was down 0.85% or 29 cents at $33.68 per barrel, having earlier registered a record intra-session decline of 5.5% to $32.10 per barrel; the lowest on file since 29 December 2003. Brent was down 0.41% or 14 cents to $34.09 per barrel, having dropped to $32.16; the lowest on record since April 2004.

Julian Jessop, Head of Commodities Research at Capital Economics, said, “We continue to expect the price of Brent crude oil, currently trading around $33 per barrel, to recover to $60 in 2017 and $70 by 2020.

“Nonetheless, with OPEC in disarray and China uncertainty persisting, we are cutting our end-2016 forecast from $55 to $45. Oil prices were above $100 per barrel for most of the first half of this decade, but they may now struggle to average much more than $50 in the second.”

Base metal futures also fell across the London Metal Exchange board following further declines in Asia on persistent concerns over China. The country’s purchasing managers’ indices for December, published earlier in the week, failed to impress the market, while heavy declines on the Shanghai Stock Exchange triggered a circuit-breaking halt to proceedings a mere 30 minutes into the trading session.

Unsurprisingly, three-month delivery contracts of copper (down 1.4%), nickel (down 1.0%), lead (down 2.2%), zinc (down 2.5%) and tin (down 0.2%) extended the previous session's losses in late afternoon trading, while primary aluminium futures came in broadly flat.

However, gold futures rallied above $1,100 an ounce level marking a fourth successive session in positive territory this week as investors sought safe havens to park their cash, with the North Korean Hydrogen bomb adding to concerns over stability in the Middle East triggered by a spat between regional heavyweights Saudi Arabia and Iran.

COMEX gold contract for February delivery was up 1.27% or $13.90 to $1,105.80 an ounce, while spot gold was 1.20% or $13.09 higher at $1,106.76 an ounce. COMEX silver reversed the previous session’s declines rising to $14.19 an ounce, up 1.53% or 21 cents. However, spot platinum was marginally down 0.02% or 12 cents at $876.73 an ounce.

Liz Grant, Senior Account Executive at Sucden Financial, said, “With all risk buttons set to "off", more investors fled to gold as a shelter and this saw prices trade up through $1,100 to $1,107.60 an ounce at one point.

“Following an emergency meeting to discuss the recent market turmoil, the China Securities Regulatory Commission announced the suspension the stock "circuit breaker" so no limits will be in place when the market re-opens tomorrow. As the news filtered through the markets, LME prices rallied with crude and equities pared some of the earlier loss. Despite the late recovery, LME closes were mostly lower.

Finally, agricultural commodity futures were firmly in negative territory during early trading calls stateside. CBOT corn (down 0.78%), ICE cotton (down 1.02%), cocoa (down 0.17%), and CME live cattle (down 1.79%) futures headed lower but CBOT wheat (up 0.78%) contract registered gains.