Commodities: Oil slips further in European trading, base metals slump continues

Oil and base metal futures continued to register declines in European trading on Tuesday, as the Chinese equities sell-off spooked global investors, alongside persistent concerns over stunted economic activity in the country and supply-global demand scenarios.

With the Greek debt crisis showing little sign of reaching a definitive conclusion, oil futures traders had to confront the additional bearish prospect of a successful conclusion to the Iranian nuclear talks resulting in the imminent arrival of additional crude from the Islamic Republic, on to an already oversupplied market.

At 15:27 BST, the Brent front month futures contract was seen extending losses from the Asian session, trading 1.56% or 88 cents lower at $55.66 a barrel. Concurrently, the WTI was down 2.70% or $1.42 at $51.11 a barrel.

Rather than follow safe haven demand on Greek sovereign debt woes, precious metals market was also heavily in the red. COMEX gold for September delivery was down 1.96% or $23 at $1,150.20 an ounce, while COMEX silver was down 6.08% or 96 cents at $14.80 an ounce.

Spot precious metals markets echoed the pandemonium seen in the futures market with spot gold shedding $16.37 or 1.40% to $1,153.96 an ounce, while spot platinum was down 2.58% or $27.47 to $1,036.19 an ounce.

Meanwhile, the Chinese overhang coupled with oversupply permutations clobbered the base metals trade on the London Metal Exchange. Past the midway point in trading, three-month contract calls for aluminium (broadly flat), copper (down 2.4%), lead (down 0.7%), nickel (down 3.7%), tin (down 1.1%) and zinc (down 0.5%) were firmly lower.

Additionally, iron ore went into freefall closing below $50 per tonne for the first time since 16 April in China and Australia. On a percentage weighting basis, the current offered price at $49.70 per tonne is representative of a 20.4% decline.

Summing up the broader commodities selloff, Kevin Norrish, senior analyst at Barclays, said the prospect of the lowest Chinese growth in a decade had cast a cloud over the market.

“The potential for instability in China where the stock market has become extremely volatile and growth is at its lowest in a decade is worrying investors. If there is hope for commodities on the demand side, then it probably comes from the potential for the Chinese government to step up commodity-intensive infrastructure development to support growth.”

Norrish and the team of Barclays analysts also opined that quick recovery in prices seems some way off, and the danger is that there could be more downside before any recovery starts to take effect.

Finally, the agricultural futures market mirrored bearish trends in the wider commodities market. CBOT corn (down 2.29%), wheat (down 2.48%), ICE cocoa (down 1.25%) and cotton (down 1.66%) futures were all firmly in the red with a stronger dollar making it dearer for emerging market buyers to bid for agricultural cargoes.