Commodities: Oil, metals futures head lower in Europe

Oil and metal futures were in negative territory for much of the Asian and European sessions on Tuesday, with persistent volatility showing no signs of easing up.

At 1621 BST, the Brent front month futures contract for October delivery was down 2.06% or $1.01 at $47.91 per barrel. Concurrently, the WTI was down 2.57% or $1.20 to $45.48 per barrel reversing most of the gains made over the previous session.

With the Brent-WTI spread narrowing well below $5, analysts at Barclays said, “Several themes have been driving the reduction in the spread, including a shifting North American landscape, light oil abundance in the Atlantic Basin and concerns about the overall health of the global economy.”

Precious metals remained firmly in negative territory with COMEX gold for December delivery down 0.65% or $7.40 at $1,125.40 an ounce, while spot gold fell 0.67% or $7.63 at $1,125.81 an ounce. COMEX silver was down 2.83% or 43 cents to $14.79 an ounce, while spot platinum was down 3.20% or $31.10 to $939.65 an ounce, as an emission standard scandal at carmaker VW threatens to engulf the European automobile industry.

Even though the market is spooked, the impact of the scandal on platinum group metals (PGMs), which are an integral part of vehicle emissions systems, is not yet clear. Analysts at Macquarie said there are two technologies used to control diesel NOx emissions in addition to the standard platinum-based catalysts.

“The older VWs used a platinum-based Lean NOx Trap (LNT), the newer ones used the non-PGM urea-based SCR system – but both appear to be implicated in the allegations. While in the short run there might be a case that more platinum (or rhodium) is needed to help meet the emissions standards, a more compelling longer-term concern is that if VW did this because otherwise the diesel cars would not meet customers’ expectations for performance or cost, then diesel might have a worse future than forecast.

“Although the US is a small diesel market (2–3% of all sales), Europe is a very large one (~50%), and the new EU6 emissions standard, which came into force on 1 September 2015, will bring NOx limits closer to the strict US ones, and “real-world” testing, due 2017, will make them harder to meet,” the analysts explained. The scandal still has some way to run before its impact for PGMs can be assessed.

Meanwhile, base metal futures fell further on the London Metal Exchange extending Monday’s declines. Past 1635 BST, LME’s three-month delivery contracts of primary aluminium (down 1.8%) copper (down 3.9%), lead (down 0.7%), nickel (down 2.0%), tin (down 2.3%) and zinc (down 1.9%) were in all negative territory.

Finally, major agricultural commodities futures were also firmly in the red. CBOT corn (down 0.98%), wheat (down 0.60%), ICE cotton (down 1.05%), cocoa (broadly flat) and CME live cattle (down 0.21%) futures were all heading lower.