On Thursday, Brent crude extended previous losses and the price of the front-month contract (ICE) thus fell in the third consecutive session and hit a six-week low. The oil price was undermined by demand worries related to the US fiscal cuts.
The US Federal Government enters today a controversial new phase of deficit cutting as an automatic trigger starts slicing budgets. US President Obama will meet with congressional leaders to discuss the sequester. If, as expected, they find no way to avoid it, Obama will sign an order directing government agencies to start implementing the cuts.
Meanwhile, an unexpected fall in North Sea oil production (the production at the key Buzzard field fell to 80 thousand barrels per day instead of the usual 200 thousand ahead of the regular maintenance) and more vital demand for physical oil supported backwardation in the short-end of futures forward curve. The spread between the front and the second-month contract (ICE) hit the highest level in three weeks.
Today in early trading, base metals extend their slide lower after the release of China’s PMI figures. The official Chinese manufacturing PMI showed that growth in Chinese factories hit a five-month low in February as domestic and foreign demand cooled. The official PMI dropped to 50.1, but part of the slack could be due to the Lunar New Year Holiday.
At the time of writing of this note, the combination of US spending cuts and slightly weaker PMI figures drag base metals prices lower; LME copper dips below 7700 USD per ton (USD/t) while aluminium, after breaching below 200 days moving average, is currently trading at 1970 USD/t.