The oil price continued to fall on Thursday and is therefore set to post losses in the fourth consecutive month. The price of the front-month contract on Brent (ICE) hit a 4-1/2 month low at 103.24 USD per barrel (USD/bbl) in the afternoon and today in early trading was even seen a touch below 103 USD/bbl level. Crude thus more or less ignored higher than expected China’s export data for October.
Copper outperformed its peers on Thursday as it was the only base metal that posted some (although minor) gains. Interesting piece of news came from the London Metal Exchange (LME) that published details of its package of measures intended to address long warehouse queues. Let us recall that the need for change of rules stemmed mainly from long loadout queues and record-high physical premiums in case of aluminium (but also zinc and copper).Unlike the proposal published at the beginning of July (which was opened for public discussions), the exchange decided to impose additional load-out requirements on warehouses with load-out queues exceeding 50 days (the original proposal was 100 days) and change load-out calculation formula so that it does not overly penalize warehouses with unevenly spread warrant creation.
Apart from that, the LME said it would examine the possibility to introduce a new contract that would allow participants to hedge “all-in” price of the metal (that is, physical premiums) and that it will launch new reports that will increase LME’s transparency; more detailed reports on stocks (on warehouse by warehouse basis) and a new “Commitment of Traders” report.
We believe that the new rules could contribute to better functioning of the LME as the market of last-resort and to its reconnection with physical markets. It might also help to clear the market that has been in surplus for several years - although this will represent a threat to producers who were benefiting from high physical premiums in recent years.