Commodities: Oil, base metal futures recover in European trading

Oil benchmarks and base metal futures recovered on Wednesday, while gold markets registered cautious gains ahead of the US Federal Reserve’s decision on interest rates due to be revealed during the next session.

At 1418 BST, the Brent front month futures contract was up 2.60% or $1.24 to $49.01 per barrel, with WTI futures, up 2.51% or $1.12 cents to $45.71, also posting a recovery.

Meanwhile, thoughts on an oil supply correction appear to be gaining traction with ratings agency Moody’s opining that plummeting oil prices will cause cash flow for the global integrated oil and gas industry to contract by 20% or more for 2015, with only a modest recovery expected in 2016.

This view reflects expected ongoing cash flow declines for companies as global crude oil prices have fallen by more than 50% since 2014, putting a major squeeze on their earnings. Moody’s also expects the industry to face a negative free cash flow position of nearly $80bn for the rest of 2015, compared with $26bn in 2014.

“We have revised our oil price outlook down several times since late 2014 and expect oil and gas prices to stay near recent low levels well into 2016, which will aggravate the industry’s negative free cash flow profile”, said Thomas Coleman, senior vice president at Moody’s.

Pressure on base metal futures eased on the London Metal Exchange with major contracts posting modest gains. Past the midway point of trading on the LME, three-month delivery contracts of primary aluminium (up 0.2%), copper (up 1.4%), lead (up 1.2%), nickel (up 2.8%), tin (up 1.1%) and zinc (up 0.4%) were in positive territory on fresh conjecture over China.

Analysts at Macquarie said: "China’s US$3.6trn of foreign exchange reserves, in our opinion, leaves them in control for the foreseeable future. There are varied, if not broad-based indications of better demand-related indicators emanating from China. In contrast, other emerging economies remain the main concern, with their currencies taking a constant battering."

Meanwhile, gold markets saw modest gains as investors’ focus remained on US Federal Reserve, and whether the central bank would hike the country’s interest rates on Thursday. COMEX gold for December delivery was up 0.91% or $10.00 to $1,112.60 an ounce, while spot gold was up 0.71% or $7.83 at $1,113.18 an ounce.

Concurrently, COMEX silver was up 2.85% or 41 cents at $14.74 an ounce, while spot platinum also staged a marginal recovery run registering a 0.33% rise or $3.22 gain to $966.07 an ounce.

Finally, agricultural commodities futures conveyed a mixed picture. CBOT corn (down 0.38%) and wheat (down 0.20%) contracts lost some of the ground gained on Monday. ICE cotton (up 0.65%) and ICE cocoa (up 0.65%) futures were in positive territory, but CME live cattle (down 0.70%) slipped lower.