On Tuesday, the oil price edged higher and the front-month contract on Brent settled at 108.01 USD per barrel. The most of the action occurred in the front-end of the forward curve – the spread between the front-month (January) and the second month (February) contract hit a four-week high ahead of Friday’s expiration of January’s contract (let us recall that the timespreads were widening ahead of the expiration of December’s contract month ago as well).
Regarding today’s OPEC meeting, we do not expect any significant change in the cartel’s policy. In other words, we believe that the OPEC will retain its official output quota at 30 million barrels per day. At the same time, we think that Saudi Arabia will keep its role of “the supplier of the last resort” and will pump more oil if needed. Apart from the OPEC meeting, the market will focus on Fed’s Bernanke press conference after the FOMC meeting and on weekly figures on US oil inventories.
Base Metals
Despite the weakening US dollar, the base metals’ prices fell on Tuesday and both copper and aluminium (LME 3M) thus failed to settle above technical levels at 8114 and 2125 USD per ton (USD/t) respectively. Today in early trading, however, prices of both metals are rising in anticipation of the results of the FOMC meeting and following press conference. We think the risk is for the FOMC to decide a lower amount of US Treasury purchases than market expects, which would be negative news for commodities prices in general.