Commodities: Oil, base metals spike on supply correction sentiment

Oil and base metal futures headed higher on Wednesday with supply correction sentiment gaining traction, while gold markets saw lacklustre trading in Europe.

At 1441 BST, the Brent front month futures contract was up 1.14% or 59 cents to $52.51 per barrel extending the previous session’s rally and climbing as high as $52.94 at one point. WTI futures, up 0.99% or 48 cents to $49.01, followed Brent in extending the uptick overnight, with the US Energy Information Administration suggesting the country's oil production rate would moderate over the course of 2016.

On Tuesday, the US Energy Information Administration noted in its monthly forecast that the country's crude production will fall through mid-2016. The EIA also raised its 2016 world oil demand growth forecast to 100,000 barrels per day to 1.41 million bpd.

Analysts at FinnCap said, “Global oil demand is growing at its fastest rate for five years (3.3% year-on-year). This demand growth means that most of the oversupply in the market will be mopped up from the second half of 2016. We forecast Brent could average US$65 per barrel in the first half of 2016 and strengthen thereafter.”

Huw Edwards, director of oil and gas exploration reservoir consultants ERCL, believes oil price volatility is complicating matters in the bidding for exploration licences. Speaking at the IRN Oil & Gas International Licensing Summit 2015 in London, the industry veteran said, “One of the really tricky things coming up is different parties bidding for the same exploration well at a different price points. Volatility is complicating matters for bidders and governments offering acreage in equal measure.”

“Licensing terms should reflect the overall cycle – oil won’t always be $140/bbl or $30/bbl; that’s the problem the industry has to manage now.”

Away from oil markets, base metal futures returned back to positive territory on the London Metal Exchange with all major contracts trading higher with several miners including Glencore and Antofagasta predicting supply corrections and an uptick in copper prices.

Past the midway point of the LME session, three-month delivery contracts of primary aluminium (up 1.5%), lead (up 2.1%), nickel (up 3.3%), tin (up 2.7%), copper (up 1.6%) and zinc (up 2.4%) were heading higher.

Elsewhere, gold markets saw modest losses with COMEX contract for December delivery down 0.07% or 60 cents to $1,145.70 an ounce, while spot gold was broadly flat at $1,147.25 an ounce. Concurrently, COMEX silver was down 0.49% or seven cents at $15.91 an ounce, while spot platinum was up 1.20% or $11.22 to $947.10 an ounce.

Finally, major agricultural commodities futures were in positive territory. CBOT corn (up 0.19%), wheat (up 0.67%), ICE cotton (up 0.63%), cocoa (up 0.52%) and CME live cattle (up 1.03%) futures traded higher.