Commodities: Oil stays firmly bearish, base metals claw back losses

Oil markets were firmly in negative territory on Thursday, while base metals recovered from the previous session’s losses with gold continuing its upward march.

Both Brent and WTI turned negative on overwhelmingly bearish sentiment as the US Federal Reserve not only appeared to put off an interest rate hike, but also cast doubt on the strength of economic activity following on from China’s economic correction.

July FOMC minutes from the Fed said: “Several participants noted that a material slow-down in Chinese economic activity could pose risks to the US economic outlook.”

Furthermore, as US oil inventories rose 2.6m overnight against an expected decline, and oversupply sentiment persisted, the market turned sharply lower. At 1536 BST, the Brent front-month futures contract fell to $46.69 per barrel; its lowest level since January, down 1.00% or 47 cents. Concurrently, the WTI was down 0.32% or 13 cents at $40.67, with both benchmarks staying in the red for most of the European and Asian session.

However, base metals saw a much better session relative to recent ones, as all major contracts on the London Metal Exchange stayed in positive territory. Past the midway point of trading, three-month contracts of primary aluminium (up 1.3%), copper (up 1.2%), lead (up 1.6%), nickel (up 0.5%), tin (0.8%) and zinc (up 2.1%) were in the green.

Copper appears to be most threatened by China’s correction as the country currently consumes 45% of global production. “While we continue to believe that China will modestly grow its copper consumption for the year, we cannot discount the rising possibility of a “hard landing” of a sharply slowing economy, with negative implications for global copper demand and price. If the dragon stumbles, the world will feel the ripple effects for years,” said analysts at Barclays.

No such worries for the precious metals market boosted by safe haven demand. With the prospect of a September US interest rate hike receding and equities tumbling, investors flocked towards gold.

COMEX gold for December delivery was trading at a five-week high, up 1.95% or $22 to $1,149.90 an ounce, while spot gold was up 1.37% or $15.56 at $1,149.94 an ounce, following high demand in emerging markets.

COMEX silver also rose 30 cents or 1.98% to $15.48 an ounce, while spot platinum was up 1.34% or $13.63 at $1,028.55 an ounce.

Finally, major agricultural commodities futures were in positive territory. CBOT corn (up 0.53%), wheat (up 1.65%), ICE cocoa (up 0.45%), cotton (up 0.24%) and CME live cattle (up 1.02%) were all trading higher.