In the first days of the New Year, the price of Brent crude hit 2-1/2 month high just shy below 113 USD per barrel (USD/bbl) after the US Congress struck a deal and averted a fall from the “fiscal cliff”. In the last two days, however, the price of oil has been falling and currently is seen back below 112 USD/bbl. Recently, news that several Fed officials are concerned about possible adverse impact of quantitative easing weigh on the price.
Meanwhile, Brent timespreads widened as the situation in the North Sea physical crude market tightened. According to Reuters data, Forties differential (i.e., Forties – Dated Brent) hit the highest level since mid March 2012 due to the higher demand stemming probably from possible shipments of oil to South Korea (such a speculation has not been, however, so far confirmed) as refinery margins remain depressed.
Base metals prices rallied after the “fiscal cliff deal” early this week and both LME copper and aluminium hit multi-month high. However, we continue to believe that the fundamentals currently do not play in favour of aluminium in particular. The aluminium market is continuing to cope with the overproduction of the metal and with the large stocks in LME warehouses, on the one hand, and with high premiums on the purchases of the metal outside the LME on the other. The high premiums are likely preventing a significant decline in metal production (let us recall that aluminium production probably reached an all-time high in 2012), and this limits the leeway for a significant price increase in the months to come.