WTI futures post a surprise rise back above $31/bbl

Wednesday, January 27, 2016

Front month crude prices managed to recover the majority of Monday’s losses during yesterday’s trading session as investors viewed the sharp sell-off at the start of the week as overdone. WTI futures managed to build on tentative support around $29.80/bbl and after briefly dropping back towards $29.25/bbl the US benchmark rallied towards $32.40/bbl before ending the session at $31.45/bbl. Many market participants were left scratching their heads as to what prompted the rally, with little in the way of economic data to spur the rebound. On the supply side, API crude inventories were expected to increase by 11.4m barrels last week which acted as a dampener to risk sentiment this morning as front month WTI futures opened just above $30.50/bbl and trade within a tight range early on. Support around $30/bbl seems to be establishing itself this week but any heightened risk aversion could once again see prices slip back towards the previous week’s lows towards $26/bbl.

Gold prices managed to hold onto yesterday’s gains as global growth concerns saw investors continue to pile into the safe haven asset. Spot prices for the precious metal rallied towards a fresh 3 month high towards $1,123/oz at one stage yesterday before settling just below $1,120/oz. Activity this morning has seen the precious metal hold firmly onto support around $1,118/oz and we expect a quiet trading session for the yellow metal as investors adopt a wait-and-see attitude to markets ahead of today’s FOMC rate decision. While the consensus expectation is for the Fed to keep interest rates unchanged after their first hike in almost nine years last December, investors will be paying close attention to Janet Yellen’s comments for any indication of when the next rate rise is coming as well as the central bank’s view of the current market volatility.

Chinese imports of copper rose to their highest level since December 2011 as customs data released yesterday saw the world’s second largest economy import just over 423K tonnes of the red metal. Three month copper prices on the LME rallied strongly on the release, adding 2.6% yesterday and gaining a foothold back above $4,500/tonne. Copper prices have managed to hold onto these gains early on this morning, trading around $4,525/tonne at the time of writing and the encouraging import data, during a month of considerable volatility and yuan weakness, was well received from market participants. However, given manufacturing growth in China has struggled to improve significantly it seems an increasing proportion of these imports is destined for warehouses where it’s used as collateral for financing. If the yuan continues to weaken against the dollar we could see this trade unwind in a very messy way and we continue to hope for signs of improving manufacturing and consumption data in China which would begin to absorb some of this excess metal.  

Crude prices recover some of the previous session's losses

CL1 Comdty Generic 1St CL Fut 2016 01 27 08 03 24

Chinese refined copper imports rise in December

CURIIQTL Index China Refined Co 2016 01 27 08 19 27

LME 3M copper prices regain a footing back above $4,500/tonne

LMCADS03 Comdty LME COPPER 3 2016 01 27 08 21 01

Events for today

0700

DE

Feb

GfK Consumer Confidence

1500

US

Dec

New Home Sales

1530

US

w/e

EIA Crude Oil Stocks

1900

US

Jan

FOMC Rate Decision

2350

JP

Dec

Retail Sales

OE:

Jan Copper, Gold , Silver (COMEX) 

Topics: Copper, Gold, Crude oil, WTI, LME
More from: Kash Kamal