Oil market supply appears plentiful, says Commerzbank

Now that OPEC and Russia have extended their production cuts until the end of next year, the focus should return to the hard facts. Thanks to the steady rise in US output, supplies to the global oil market are ample. Consequently, we still expect a marked drop in prices even though it didn’t happen yesterday. The price correction on the base metal markets too is set to continue: Copper, in particular, could come under pressure if China imported less refined copper. Gold can be expected to move sideways up to the ECB and Fed interest rate verdicts in mid-December, Commerzbank reported

OPEC and Russia have 'delivered': They plan to stick to production cuts up to the end of next year, while reviewing the agreement at the next OPEC meeting in June. The market hardly responded at all. However, prices are likely to retreat over the coming weeks. The net long positions of speculators, still close to record highs, point to a price correction. The decisive factor, though, is the ample supply levels. The situation now is hardly different despite US crude inventories having shrunk. At present, they are not a reliable indicator of global market supplies.

Closure of the Keystone pipeline in mid-November, for example, has reduced US imports and therefore inventories. Moreover, the US has for some months now been exporting far more crude oil, thanks to the generous markdown of WTI versus Brent. With a current price gap of USD6 a barrel, this situation is unlikely to change for the time being, so that US stocks will probably continue to shrink. When the IEA monthly report due out the week after next is published, at the latest, it should become clear that stocks elsewhere are higher, as a result, i.e. the global market is amply provided during winter.

China has ordered production cuts in the steel and aluminum industry in response to high levels of environmental pollution. This is likely to have hit imports of major pre-products in November. In contrast, Chinese copper output remains buoyant. The import figures for November can be expected to suggest this trend continuing: Imports of copper ore are likely to have risen, but those of refined copper to have fallen even further. Consequently, prices seem set to drop back further to below the 2½-year high reached in mid-October.

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