Commodity prices faced some heavy selling this week as the spotlight fell on the impact of China’s stock market crash, while uncertainty over Greece added to the downward pressure.
“The idea that a stock market crash could put a hole in China’s economy and reduce demand from the world’s biggest resource-consumer is adding to the pain for commodities,” CMC Markets analyst Jasper Lawler said.
OIL: With prices already downbeat, the International Energy Agency (IEA) on Friday forecast that global oil demand growth would slow next year and that crude production in nations outside OPEC would stall.
In its first estimates for next year, the IEA forecast that oil demand would slow next year to 1.2 million barrels per day, compared with an average of 1.4 million barrels per day this year.
Meanwhile, growth in non-OPEC oil supply “is expected to grind to a halt next year as lower oil prices and spending cuts take a toll,” it said in a monthly report.
In a rollercoaster week, the Shanghai market gained 5.18 percent overall, after the government announced additional policies to avoid a market crash. However, it is still down 24.9 percent from its closing peak on June 12.
The oil market was also focused on Greece amid hopes the debt-strapped nation would reach a deal with its creditors after Athens on Thursday laid out details of a new bailout plan to save it from financial collapse.
In addition, traders are keeping an eye on negotiations in Vienna between western powers and Iran on a deal to curb Tehran’s nuclear ambitions and allow the lifting of punishing sanctions.
A reprieve would allow Iranian oil to flow back into the global market, adding to a supply glut and helping depress prices, according to analysts.
By Friday on London’s Intercontinental Exchange, Brent North Sea crude for delivery in August fell to US$58.68 a barrel from US$60.39 a week earlier. On the New York Mercantile Exchange, West Texas Intermediate (WTI) or light sweet crude for August dropped to US$52.74 a barrel from US$55.41 a barrel.
PRECIOUS METALS: Gold led the precious metals complex lower.
“If the markets receive further indications that the [US] Federal Reserve will leave interest rates unchanged... possibly even until December, then this would allow gold an opportunity to begin recovering the heavy losses of the past couple of months,” said Jameel Ahmad, chief market analyst at trading group FXTM.
The dollar has gained in recent months, not only from the Greek fallout, but also from expectations that the US central bank could start raising its key interest rate before the end of the year — making it a more attractive investment compared with gold, itself seen as a haven investment.
By Friday on the London Bullion Market, the price of gold dropped to US$1,159.30 an ounce from US$1,167.95 a week earlier.
Silver fell to US$15.45 an ounce from US$15.64.
On the London Platinum and Palladium Market, platinum slid to US$1,029.30 an ounce from US$1,083. Palladium slumped to US$649.35 an ounce from US$701.
BASE METALS: Prices mostly declined as traders took their lead from China.
“There is still some uncertainties about the supply and demand going forward,” Saxo Bank analyst Ole Hansen said. “Commodities rely on growth and demand, and the demand is coming from China. If you look at base metals, somewhere between 40 to 50 percent of all metals are consumed by China. If demand slows this could have a significant impact on the supply demand situation,” he said.
By Friday on the London Metal Exchange, copper for delivery in three months dropped to US$5,577.50 a tonne from US$5,803 a week earlier.
Three-month aluminum slid to US$1,690.50 a tonne from US$1,728, while three-month lead rose to US$1,794.50 a tonne from US$1,775.
Three-month tin declined to US$13,975 a tonne from US$14,400, and three-month nickel fell to US$11,275 a tonne from US$12,125.
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