Commodities: Oil rally cools as oversupply concerns return

Oil futures headed sideways on Thursday, after substantial spikes over the previous session, premised on a call by major producers to freeze production, fizzled out with Iran still not clarifying its stance on whether or not it would back a Saudi-Russian initiative.

The Saudi-Russian move, announced on Tuesday, is aimed at capping oil production at their respective January output levels. The first such instance of OPEC and non-OPEC cooperation on oil production for 15 years is also backed by Venezuela and Qatar.

Iraq’s oil ministry has come out in favour of the move as well, but is yet to formally clarify its own response. At 1656 GMT, the Brent front-month oil futures contract was down 0.23% or eight cents at $34.42 per barrel, having registered a spike of above 7% overnight.

The WTI contract was fairing marginally better up 0.36% or 11 cents at $30.77 per barrel, as traders contemplated booking profits, with little movement from Iran and the wider market still awash with crude.

In a note to clients, analysts at Barclays said, “We expect WTI time spreads to widen further over the coming weeks, as Cushing [Oklahoma, US] storage utilisation rates rise. The rate of builds leading to April is likely to speed up first as US refinery runs fall on economic run cuts and seasonal maintenance. It could then slow as the severity of the supply cuts starts getting reflected.”

“Furthermore, as US supply declines, the second half 2016 could see WTI time spreads strengthen relative to Brent time spreads, a contrast to the current environment in which Brent time spreads are healthier.”

Meanwhile, precious metals remained on positive turf posting modest gains. The COMEX front-month gold futures contract was up 0.68% or $8.20 at $1,219.60 an ounce, while spot gold was up 1.03% or $12.40 to $1,220.90 an ounce.

COMEX silver rose 0.15% or two cents to $15.40 an ounce, however spot platinum fell a nominal 0.12% or $1.10 to $941.45 an ounce.

Selected base metal futures were marginally in positive territory on the London Metal Exchange. At 1635 GMT, three-month futures contracts of tin (up 0.1%), nickel (up 0.2%) and copper (up 0.1%) rose, but lead (down 1.2%) and primary aluminium (down 0.1%) futures posted declines.

Liz Grant, senior account executive at Sucden Financial, said, “Once again, it was another quiet trading day on the LME with low turnover across most contracts. The London morning session saw prices edge lower from highs established in the Asian session. Copper continued to test $4,600/t but failed to break above.”

Finally, headline agricultural commodity futures were on mixed turf. CBOT corn (down 0.13%) and wheat (down 0.90%) futures headed lower. However, CME live cattle (up 0.73%), ICE cotton (up 1.13%) and cocoa (up 1.01%) contracts traded higher in early calls stateside.