On Monday, the oil price partially recovered after it had posted the largest daily loss since mid June on Friday. Apart from technical factors (the price of the front-month contract on Brent bounced off a support at 105.8 USD per barrel), escalation of political tensions in Libya has probably played some role.
According to Reuters, heavy shooting erupted early on Tuesday in Tripoli, the Libyan capital. Let us recall that after the miracle recovery in oil production after the fall of Gaddafi’s regime (see the chart below), the government has struggled to control armed militias that had contributed to Gaddafi’s fall. On Sunday, anti-government forces in the eastern part of the country (where about 60 percent of the country’s oil production is located) unilaterally declared its autonomy and named its own government. Recent events thus remind that the country’s internal political situation is far from being stable which might add some support to oil prices in months ahead.
At the time being, however, the situation in the North Sea physical market (which is closely linked to Libya’s oil production) remains stable as many refineries have not returned from maintenance to full operating capacity due to weak refinery margins (although they have been steadily improving in recent weeks). Relatively easy conditions, as far as supply/demand balance in the North Sea market is concerned, is illustrated by the steepest contango in CFD curve since mid June this year.
Base metals prices extended previous losses on Monday and prices of both copper and aluminium fell by more than 1 percent. Recently, base metals prices have been under pressure of the strengthening US dollar. As regards aluminium, the price breached a support at 1840 USD per ton (USD/t) yesterday and the metal thus posted losses in the fourth consecutive session. We think the price of the metal may rather remain under pressure in months ahead and we believe that any strong gains (such as those seen in last few weeks that pushed the price to 1900 USD/t) to be short-term episodes.