Commodities: Oil recovers ground, gold remains in the green

Oil benchmarks recovered ground in European intraday trading on Wednesday, after overnight dips on oversupply permutations and the strength of the dollar.

At 16:05 BST, the Brent front month futures contract was trading at $64.85 per barrel up 83 cents or 1.30%, while the WTI was up 0.98% or 57 cents at $58.56.

The dollar has risen against the euro for much of the current week after a European Central Bank official said it would boost its asset purchase stimulus program in May and June to offset a potential market slowdown.

The US Department of Energy also reported crude oil stockpiles at record highs, despite pointing to a weekly decline for last week. Joshua Mahony, market analyst at IG, said: “A third consecutive weekly fall in US oil inventories hardly lit a flame to oil prices as a muted and short-lived bounce higher points to the fact that despite reserves falling another 2.2m barrels, there are still over 60m barrels in Cushing, Oklahoma stocks.

“With near all-time high levels of crude awaiting release onto the markets, alongside a whole raft of producers waiting to bring their operations back on board, I can only seen further downside in the price of oil in the coming weeks.”

Meanwhile, gold continues to hold ground above $1200 an ounce, even if its five-day rally fizzled out overnight. In the US, COMEX gold for June delivery came in at $1,211.20 an ounce, up $4.50 or 0.37%. A spot ounce of gold was fetching $1,210.18 up $2.32 or 0.19%. Concurrently, silver was also in the green at $17.21 an ounce up 13 cents or 0.78%.

Elsewhere, iron ore markets remain in a wretched patch with Fitch Ratings further downgrading its price assumptions for ratings purposes. In a note to clients, the agency said iron ore prices would “stay low for several years due to increasing supply, weak demand growth in China and the slower-than-expected closure of high-cost mines”.

As a result, Fitch has revised its iron ore spot price assumptions on a cost and freight basis down to $50 per tonne in 2015 and 2016, compared to $65 and $75 previously. More significantly, its long-term price assumption was also lowered $70 from $80.

Fitch observed: “We expect iron ore market leaders BHP Billiton, Rio Tinto and Vale to continue increasing production in 2015 despite falling prices, as they are also the lowest-cost producers. This is likely to outweigh the impact of any shutdowns among higher-cost producers in the near-term.”

On the agricultural commodities front, a whole raft of contracts were trading lower. CBOT corn (down 0.69%) and wheat (down 0.10%) contracts, CME live cattle (down 0.56%), ICE cocoa (down 0.95%) and cotton (0.90%) were all in the red.