Although the price of Brent oil hit 18-month highs in the last two weeks, in the end it fell and returned to less than US$112 per barrel. The situation in Syria grabbed the spotlight over that period, with price fluctuations reflecting the initially increasing and later decreasing likelihood of a military intervention by the United States against President Assad’s regime.
While the situation in Syria directly influenced oil prices, the persisting problems of supplies from Libya again had an impact on the forward curve, the slope of which is still high, even though the price has fallen (the spread between the prices of front-month and twelve-month contracts is US$8.6 per barrel, which, apart from this occurrence, also occurred for a short time in February this year). Demand for North Sea oil, notably for higher quality grades such as Ekofisk, is strong, even though refining margins in North-Western Europe are likely very low, perhaps even negative. In the weeks to come, however, the situation in the physical market may continue to calm down, and this should also lead to a fall in oil prices. Apart from the potential return of Libyan oil to the market (although this is still uncertain), the commencement of refinery maintenance (typically strong in October) and increased production in the North Sea should help ease the tension in North Sea oil market. According to the released loading programme, production of BFOE should exceed 900,000 barrels a day in October, the most since February this year.
Base Metals
Prices of base metals were down by 2.7% on average in the last two weeks, although demand indicators tended to remain positive (for example, the business mood in China showed signs of improvement in August). Not even the regular monthly report from the U.S. labour market clearly encouraged the Fed’s monetary tightening, and this may be negative, in terms of financial demand for metals. Developments in the aluminium market in particular were of interest, as its physical premiums (surcharges above the LME spot price) started to fall slowly after a long period of rising, due probably to the planned revision of storage rules at the LME. This should be good news for consumers of the metal in particular, while such developments pose a potential threat to producers of the metal.