Commodities prices rose across the board on Friday. This time, oil prices lagged behind base metals complex. Still, the front month contract on Brent (ICE) gained about 1.3 percent and was thus seen at the highest level since the end of May.
Moreover, backwardation in the front-end of Brent forward curve strengthened (see the chart). Meanwhile, Iran reiterated that it could close the Strait of Hormuz in a response to western sanctions related to the country’s nuclear programme. However, Reuters cited military analysts who said that such a scenario is, with respect to the prospective response of the US forces, unlikely. We do not expect that Iranian threats are likely to significantly support the price of oil on the backdrop of current global economic situation.
Base metals prices posted relatively strong gains on Friday. Copper was the second best performer – the 3M contract at LME gained nearly 2 percent.
As we have already noted, the red metal might experience similar squeeze to this observed in April/May this year in weeks ahead. Recall that stocks of the metal at LME remain, despite some increase, at historically unusually low levels and that cancelled warrants to stocks ratio has surged by 10 percentage points so far in July and is therefore seen back above 20 percent. However, the shape of the forward curve at Shanghai suggests that stocks of the metal in China - the world’s top consumer - remains rather calm. Therefore, we think that the price of the red metal might be prone to show short-term spikes. At the same time, given the current situation, we keep our forecast for the average price in the third quarter at 7600 USD per ton.