Commodities: Oil stabilises, but European metals market sees sharp declines

Oil benchmarks stabilised, albeit at seasonal lows, on positive data from China coupled with a decline in US inventories on Wednesday, but the European metals market continued to spiral downwards.

At 16:03 BST, the Brent front month futures contract was trading at $50.28 per barrel, up 29 cents or 0.58%, while the WTI was broadly flat at $45.75 with both benchmarks largely staying in the green for much of the European session as US crude inventories fell by 2.4m barrels last week to 459.7 million.

City analysts were expecting a decrease of 1.5m barrels. The American Petroleum Institute data published late on Tuesday also revealed oil stocks at the US delivery hub of Cushing, Oklahoma fell by 504,000 barrels. Positive data from China also helped as the Caixin/Markit services purchasing managers’ index (PMI) for the country rose to 53.8 in July, from 51.8 the previous month.

However, it was not enough to fire up the metals market, which continued to send mixed signals, as selected futures contracts saw heavy selloffs on the London Metal Exchange.

Past the midway point in trading, three-month delivery contracts of tin (down 5.2%) and zinc (down 1.1%) saw sharp drops. Yet, the drop in prices was less steep for primary aluminium (down 0.2%), copper (down 0.8%), lead (down 1.2%) and nickel (down 0.5%).

Analysts at Deutsche Bank feel a supply correction is inevitable, if not around the corner just yet. “The strong USD / weak producer currency environment continues to weigh on the industrial metal complex, but we are starting to see some signs of a producer response. However, in most markets we have not yet reached a critical mass of closures,” they wrote in a note to clients.

Meanwhile, precious metals continued to take a pounding, with gold staying near five-year lows on expectations of an interest rate hike in US, and oversupply denting confidence in the platinum market.

COMEX gold for December delivery was down 0.58% or $6.30 at $1084.40 an ounce, while COMEX silver for September delivery was down 0.19% or three cents at $14.53 an ounce. With little supply-side respite in sight, spot platinum shed another $4.74 or 0.50% to $949.65 an ounce, breaching the $950-level.

Finally, agriculture futures had a mixed session. CBOT corn (up 0.99%) and wheat (up 1.47%) contracts were trading higher, while ICE cocoa (down 1.48%), cotton (down 0.17%) and CME live cattle (down 0.17%) were trading lower.