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Oil and Metals Commodities Roundup

November 2, 2020

Oil continues to remain under significant pressure in early morning trading in Asia, with ICE Brent down more than 5% at one stage, and with prices reverting back to levels last seen way back in May. News that a host of countries across Europe will re-enter lockdown is not proving great news for the market.

Over the weekend France, Germany, the UK and Belgium have stated that they will be going back into a full lockdown, and three of these four countries are significant oil consumers in the region. If we look at pre-Covid-19 demand numbers, these four countries alone consumed in the region of 6 million barrels per day or the equivalent of a little over 6% of global consumption, and so it’s no surprise that we are seeing the market reacting this morning.

The pressure oil is under now will be a real concern for OPEC+, especially with Brent now trading well below US$40 a barrel. New lockdowns, continued Libyan supply and this price pressure mean that it is looking ever increasingly likely that OPEC+ will extend current cuts into January. However, we will still have to wait until their meeting at the end of this month before a decision will be made. If this downward pressure on the market continues, it’s still possible the alliance could have an emergency meeting to try calm market fears.

Another key issue the oil market may have is the US presidential election tomorrow, a Joe Biden victory could see the US taking a less warlike stance with Iran, and so raising the chances that we see oil sanctions against Iran removed. While it is still unclear how high Iran would be on Biden’s priority list, a win for the Democrats could put some added downward pressure on oil prices, with the possibility of 1.5/2 million barrels per day of oil supply returning to the market over time.

Metals Roundup

Base metals headed lower on Friday, as a continuous surge in Covid-19 cases continued to weigh heavy on the market feeling. LME copper prices fell below US$6,700/t, while nickel took the biggest hit on Friday, falling more than 2%. Meanwhile, the suspension of operations at Chile’s Candelaria copper mine continued on Friday, with management and union workers failing to reach an agreement. Operations at the mine have been suspended since 20 October.

Over the weekend, China released its manufacturing PMI, which showed that factory activity was still in the expansion zone over October, albeit at a slower pace. Looking ahead, and the key focus for metal markets in the coming days will be the outcome of the US election.

As for the latest CFTC data, this shows that speculators reduced their net long position in COMEX copper, selling 3,321 lots over the last reporting week, and leaving them with a net long of 88,257 lots as of last Tuesday. For precious metals, speculators trimmed their net long in COMEX gold by 3,702 lots, to leave them with a net long of 131,609 lots, while increasing their net long in silver by 1,708 lots.

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