Commodities: Oil retreats despite producers' pledge to 'freeze' output

Oil futures headed lower on Tuesday despite a pledge by major producers to freeze production.

After nearly a month of market chatter about OPEC and non-OPEC producers announcing some sort of a production cut led by Russia and Saudi Arabia, officials from three OPEC member nations – Saudi Arabia, Qatar and Venezuela – and the Russians met in Doha earlier in the session, and agreed to ‘freeze’ oil production at January levels, provided others follow suit too.

Saudi Arabian oil minister Ali al-Naimi said, “Freezing now at the January level is adequate for the market. We don’t want significant gyrations in prices, we want to meet demand. We want a stable oil price.”

However, the announcement fell short of a real terms cut, with Iran apparently unwilling to join the move. In response, oil futures practically reversed all of the gains achieved overnight.

At 1657 GMT, the Brent front-month oil futures contract was down 2.07% or 69 cents to $32.70 per barrel, while WTI was down 0.54% or 16 cents to $29.28 per barrel.

Commenting on the agreement between Saudi Arabia, Russia, Qatar and Venezuela to freeze oil production, Chris Lafakis, economist at Moody's, noted: “While this agreement removes uncertainty about future Saudi output and signals that the world’s oil producers are getting impatient for prices to rise.

“Furthermore, the agreement is the first cooperative agreement between OPEC and non-OPEC members in 15 years, and it signals an appetite for further intervention should conditions dictate.”

Meanwhile, precious metals stayed firmly in negative territory. The COMEX the front-month gold futures contract was down 2.11% or $26.20 to $1,213.20 an ounce, while spot gold was broadly flat at $1,210.79 an ounce.

COMEX silver fell 2.72% or 43 cents to $15.36 an ounce, while spot platinum fell 0.14% or $1.29 to $935.81 an ounce.

Selected base metal futures were in positive territory on the London Metal Exchange. At 1635 GMT, three-month futures contracts of primary aluminium (up 0.7%), tin (up 0.4%) and nickel (up 0.8%) rose, but lead (down 1.7%), zinc (down 0.6%) and copper (down 0.4%) futures posted declines.

Liz Grant, senior account executive at Sucden Financial, said, “It was another low turnover day for three-month trading on the LME as the market treads water whilst seeking clearer directional signals.

“Copper made another attempt to clear $4,600/t today but failed, gradually drifting back to $4,550 area during the pm session. Turnover remained light through the session.”

Finally, agricultural commodity futures were largely on a positive patch. CBOT corn (up 0.28%), wheat (up 1.08%), CME live cattle (up 0.85%) and ICE cotton (down 1.96%) traded higher in early calls stateside. However, ICE cocoa (down 1.36%) futures headed bucked the trend and headed lower.