Commodities: Oil rallies, metals recover on US GDP uptick

Base metal and oil futures recovered on Thursday following improved US data and China’s move to stimulate its economy.

The People’s Bank of China announced overnight it would pump 140bn yuan of stimulus into the economy a day after cutting interest rates, the deposit facility and the reserve rate ratio. Beijing continued to react following the crash of ‘Black Monday’, as US second quarter gross domestic product came in higher than previously estimated.

According to the Commerce Department, US GDP expanded by an annualised 3.7% in the three months to June, compared with an initial estimate of 2.3% and ahead of analysts’ expectations calling for a 3.2% increase. Both Brent and WTI responded in kind. At 1607 BST, the Brent front month futures contract rallied 7.19% or $3.10 to $46.24 per barrel, while the WTI was up 7.07% or $2.73 to $41.33 per barrel.

Jasper Lawler, analyst at CMC Markets UK, said, “Crude oil saw a big jump as global growth fears receded. The global growth outlook has been aided by rosier prospects in the two largest global economies with US GDP stronger than previously forecasted and monetary stimulus improving the economic prospects for China.”

Base metals also bounced back in European trading despite fragile trading sentiment. Past the midway point of trading on the London Metal Exchange, three-month futures contracts of primary aluminium (up 0.7%), copper (up 1.4%), lead (up 0.7%), nickel (up 2.6%) and zinc (up 1.6%) were all trading higher.

Copper continues to grab the headlines, as LME positioning data for the week to 21 August, released on Tuesday, showed that Money Managers in copper moved to a net long (1.2k lots) after having spent most of the last month in a net short position.

Analysts at Macquarie noted, “The move came principally as shorts covered, despite prices briefly puncturing $5,000 per tonne on several intraday occasions during the week.”

“Copper’s forward curve has reverted sharply to a backwardation at the front end in recent days as successive days of warehouse warrant cancellations compounded a persistent (and we think growing) dominant warrant position to squeeze the near dates.”

With safe haven demand falling, gold returned to negative territory. COMEX gold for December delivery was down 0.25% or $2.80 at $1,121.80 an ounce. However, rest of the precious metals market posted gains with COMEX silver up 2.07% or 29 cents to $14.37 an ounce, while platinum was up 2.36% or $23.17 to $1,006.07 an ounce.

Finally, agricultural commodities futures saw widespread gains. CBOT corn (up 1.14%), wheat (up 0.76%), ICE cocoa (up 0.32%), cotton (up 0.40%) and CME live cattle (up 1.57%) contracts were all trading higher.