Decreasing likelihood of US intervention in Syria pushed oil down

Decreasing likelihood of US military intervention in Syria weighed on oil on Monday. Today in early trading, the price of the front-month contract on Brent (ICE) extends losses as the US president said yesterday he would be willing to put the military intervention against Syria on hold if Assad’s regime relinquishes the control of its chemical weapons.

Let us recall that the fear of strike against Syria has probably been the main catalyst for recent surge in oil prices as it put even more pressure on already distressed market (recall for example production outages in Libya, North Sea, Nigeria, issues with transport of Iraqi oil to Mediterranean Sea, ...). The fear of possible intervention and related speculator’s bets on oil prices rising further have been visible in money managers’ positions in Brent futures (see the chart). Although the net speculative position fell slightly last week, it probably still remains high and thus suggests that the market might be prone to sharp corrections such as the one we saw yesterday.

Base Metals

Base metals prices slightly fell on Monday. The only exception was copper – three month contract (LME) on the metal gained 0.5 percent. Copper was probably supported by higher than expected China’s export figures for August and more or less ignored weaker imports (although copper imports fell as well, it still remained at very healthy 390 thousand tonnes in August).

Regarding today’s figures on industrial production and retail sales (both for August), while the latter came out more or less in line with expectations, the former surprised on the upside and indicated that the prospects of the Chinese economy may be improving. On the other hand, let us recall that while refined copper consumption fell slightly in the first half of this year in comparison with the same period of 2012, copper production grew by about 5 percent. We thus continue to believe that the copper price could fall back below 7000 USD per ton on average in the fourth quarter of this year.