Brent crude closed barely changed on Monday although the US dollar posted some gains (EUR/USD cross rate dipped below 1.25 in the morning). In the meantime, South Korea announced it would suspend imports of oil from Iran as EU/US sanctions are going to take effect in just a few days. According to the data released by Korea National Oil Corp, the county has already been cutting imports of oil from Iran, especially in recent months (in May, the imports fell by 40% Y/Y). Iranian oil has been replaced by higher imports from other Middle East countries such as Saudi Arabia, Kuwait, UAE and Qatar. Moreover, South Korea also has been purchasing oil in spot markets – Platts reported that the country has been buying North Sea Forties oil (a part of the BFOE, or Brent, benchmark) and is expected to do so in months ahead. As we pointed out in our recent flash report, South Korea’s buying might have played a significant role in maintaining backwardation in Brent forward curve which was present during the recent sell-off (recall, however, that the curve slipped into contango about 10 days ago).
As for the next development in crude oil markets, we think that Saudi’s response to the recent drop in prices will remain the key factor. As we already pointed out, we do not expect any significant cut in Saudi’s oil production on the eve of seasonally higher demand and still unclear impact of sanctions against Iran (in other words, we expect prices to stay close to current levels in months ahead, should the situation in the euro zone remain stable).
On Monday, aluminium posted the first daily gains in the last twelve sessions. However, the price remains well below 1900 USD per ton (USD/t) level. Meanwhile, the three month copper at LME outperformed the rest of the base metals complex and the spread between LME and Shanghai slightly widened (in favour of LME).