Brent crude lost about 0.3 percent and backwardation in the front-end of the forward curve (ICE) slightly eased despite the fact that the oil production at Buzzard oil field experienced another problems. Today in early trading, oil slides lower and at the time of writing is trading below 108.50 USD per barrel level.
Base Metals
On Monday, base metals rallied on news that China’s State Reserve Bureau (SRB) has issued tenders to buy zinc and aluminum from local smelters. As a result, three month contract on aluminum (LME) surged by nearly 2.5 percent. The SRB announced a plan to buy 160 thousand tons (MT) of primary aluminum. According to Reuters, the bureau might even buy a total of 400 thousand MT.
Regarding the possible impact on the market, although the prospective volumes are significant from the view of China’s reserves (which are, according to sources quoted by Reuters, around 1 million MT), it is rather small with respect to the overall market balance, global reserves or China’s consumption (see the chart). We therefore do not expect the rally to be sustainable on its own. However, the willingness to buy the metal might indicate that China is considering some bolder steps to support the slowing economy, which would undoubtedly be positive news (not only but mainly) for the base metals prices.
Let us recall that the aluminum market has been structurally oversupplied, mainly due to the significant increase in production in China and Gulf Coast Countries.