Crude futures rally on short covering, central bank support

Monday, January 25, 2016

Front month crude oil futures ended the week on a high note as Brent contracts for March delivery rallied back above $30/bbl, ending the session 8.6% higher. Crude markets faced significant headwinds throughout the first month of the year with risk averse investors pulling out of commodity markets on global growth jitters. Prices for the global benchmark lost as much as 26% since the start of the month with front month futures dipping towards $27/bbl, registering fresh multi-year lows. However, expectations of continued central bank support, likely from both the PBOC and ECB buoyed risk assets towards the end of last week and acted as a catalyst for short covering in crude markets. Brent prices experienced firm buying throughout Friday, eventually ending the session just above $32/bbl. Activity this morning has seen an early attempt to push higher, towards $32.80/bbl but caution has prevailed with the global benchmark paring some of last week’s gains, trading around $31.60/bbl at the time of writing.

Persistent global growth concerns have shored up investment support for gold as the previous metal rebounds back above $1,100/bbl at the start of this week. Intraday moves last week attempted to build on the modest appetite for gold with key resistance at the 100 day moving average around $1,107/oz proving difficult to breach. Hedge funds have been large buyers of the precious metal and recent trading sessions have seen a strong appetite for gold on any dips below $1,100/oz. SPDR Gold Trust ETF holdings continue to build throughout January, rising to a ten week high of 665.17 tonnes, rising 5.4% since the December trough of 630 tonnes even as a stronger dollar acts as a drag on other commodity markets.

The steel market in China was offered some encouragement after Premier Li Keqiang promised additional cuts to capacity as efforts to restructure the world’s biggest steel industry continue. Steelmakers listed in China rose strongly on the news, adding as much as 5% on the day as Beijing detailed plans to cut between 100-150m tonnes of capacity. Steelmaking capacity in China is well over 1bn tonnes per year and while the proposed cuts may not fully address the supply overhang, the closure of high cost and inefficient steelmaking capacity is expected to improve capacity utilisation rates by a significant factor. Spot iron ore prices held around $40/tonne towards the end of last week with the benchmark TSI 62% Fe CFR Tianjin index briefly trading above $42/tonne at the start of the week before paring some of these gains as the weekend approached.   

Front month Brent futures rally strongly on short covering

CO1 Comdty Generic 1St CO Fut 2016 01 25 08 05 21

Gold holds onto support above $1,100 

XAU Curncy Gold Spot Oz D 2016 01 25 08 13 43

Events for today




Trade Balance (24/01/16)




IFO Surveys




Dallas Fed Manf. Activity

Topics: Gold, Crude oil, Brent, PBOC
More from: Kash Kamal