Oil price consolidates after an exceptionally strong sell-off of commodities last week

On Monday, the oil price was hovering at 100 USD per barrel (USD/bbl) level, little changed after an exceptionally strong sell-off of commodities last week. Despite the sharp price fall, the demand for North Sea oil slightly picked up lately – Forties differential against Dated Brent is seen by about 50 cents higher than in the end of March. However, offsetting this, several Forties cargoes were advanced due to continuing strong production from Buzzard field.

Although we had expected the oil price to drift lower over the medium term mainly on improved production prospects, we think that the last week’s sell-off was overdone and we expect the oil price to rebound in weeks ahead. Let us recall that low demand for North Sea oil can be partly attributed to exceptionally heavy refinery maintenance in Europe which should wane as the driving season comes.

Base Metals
While the majority of base metals posted some gains on Monday, the price of the three-month contract on copper continued to fall and settled below 7000 USD per ton (USD/t) level. As in the case of oil, we think that the recent copper’s losses might have been exaggerated and we believe in some uptick in weeks ahead. Although the broader narrative clearly is bearish, speculators’ bets on further fall in copper prices were seen close to its all-time high (see the chart).

Regarding today’s data, growth in China’s manufacturing sector slowed in April as new export order shrank this month due to poor demand from the euro zone and the US. The flash HSBC manufacturing PMI for April dropped to 50.5 from 51.6 in March, while only a marginal weakening was expected. As a result, the copper price is currently seen at 6809 USD/t. Technically, the next major support is seen at 6640 USD/t.

Precious Metals
Gold posted relatively strong gains in the fifth straight session on Monday. The price of the metal was bolstered mainly by vital Asian demand; according to sources quoted by Reuters, Indian buyers took advantage of the relatively cheap metal and re-stocked due to the wedding season. At the same time, however, holdings of the metal in physical ETF continued to fall and last Friday hit 1- 3/4 year low.