On Thursday, the defining moment in trading was undoubtedly the very strongworded warning of the ECB that they were ready to act to preserve the integrity of the euro area. Mr. Draghi signaled at a London conference that the ECB would no longer stay on the sidelines, looking how the euro area disintegrates. Such a comment was positive for the most of assets and commodities prices were no exception. The front-month contract on Brent erased early losses and surged by about 2 USD per barrel (USD/bbl) in early afternoon and therefore breached 105 USD/bbl level.
Today, the eye-catcher is the release of US GDP figures for the second quarter of this year. We believe that the risks might still be on the downside of expectations and that also the details won’t reveal any encouraging news. Moreover, revisions of previous figures might pose an additional risk. However, the impact on the price of oil is uncertain. On the one hand, it might spur more bets on QE, on the other, weaker growth means even lower demand for oil. Bearing in mind unknown reaction of German policymakers as well as still unresolved situation in Greece, we maintain our estimate for the average price of oil in Q3/2012 at 100 USD/bbl.
LME copper also appreciated unexpected comments of the ECB’s president Draghi and posted some gains. However, the metal remained stuck at about 7500 USD per ton level. We think, however, that gains were driven rather by the weakening US dollar than by rebalancing risks for global economic growth.
Despite the fact that the short-end of forward curve in Shanghai flipped into backwardation in last few days, we believe that the market in China remains broadly balanced (stocks of the metal at Shanghai exchange are well above mid term average and LME – SHFE spread is positive). We therefore think that the main risk for the LME price might be short-term squeeze similar to the one observed earlier this week – cancelled warrants ratio has been above 20 percent (high number from the historical viewpoint) for the most of July.