A set of negative data from both China and the euro zone further undermined the price of oil on Thursday. The front-monthcontract on Brent fell even below 90 USD per barrel (USD/bbl) and the contango in the front-end of forward curve further deepened.
The market currently waits for signs of falling production in the country of the world’s top exporter Saudi Arabia. Despite the fact that some OPEC members interpreted the outcome of last week’s meeting that the decision to maintain the production quota at 30 million barrels per day is equivalent to Saudi’s pledge to cut the excessive production, Saudi Oil Minister Naimi was silent on that subject. Even though he mentioned that oil at 100 USD/bbl is comfortable for both producers and consumers, we think that the kingdom might be satisfied with the price below that level (at least in the short-term).
However, we think that the market will watch reports on oil production closely in months ahead (recall that according to both EIA and OPEC, Saudi oil production already slightly decreased in May).
Base metals prices fell across the board on Thursday. LME copper hence dipped back below 7500 USD per ton. Interestingly, three month contract in Shanghai (ShFE) closed barely changed yesterday and LME/ShFE spread thus narrowed. Meanwhile, the price of aluminium shrunk by 1.8 percent and hence posted losses in tenth straight session.
After the release of Philly Fed for June, gold extended early losses and fell below 1600 USD/toz. Both the headline figure and the details are really disappointing, suggesting that manufacturing activity is cooling sharply. The result supported the US dollar and hence triggered a sell-off of gold. Nevertheless, the regional business confidence indicators are usually volatile and therefore we look for further evidence from the national ISM before drawing strong conclusions.