The oil price slumped yesterday

Crude

After hitting a two-week high on Friday, the oil price slumped yesterday and settled back below 60 USD/bbl (1M ICE Brent). Apart from weaker US data, comments of Iran’s Foreign Minister may have played some role. The minister said that “a deal on Iran's nuclear programme could be concluded this week if the United States and other Western countries had sufficient political will and were agreeable to removing sanctions”.

Though the progress has been made in nuclear talks between Iran and its counterparts, we remain cautious with respect to lifting the sanctions and consider such a scenario as less likely. On the other hand, if the deal was struck, the market would have to digest as much as 1 million barrels of oil per day more in comparison with current state. This would obviously have a negative impact on prices, especially towards the backdrop of already oversupplied market.

Metals

The weekend’s decision of China’s central bank (PBoC) to cut interest rates only had a little impact on base metals prices yesterday; copper price (3M LME) hit a seven-week high at first but later in the session pared gains and increased by mere 0.2% while the aluminium price even declined by about 0.8%.

Although China is by far the largest consumer of base metals and recent step of PBoC signals that the authorities stand ready to support the economy, the pace of economic growth is expected to decline this year. This should also translate into a slower growth of demand for commodities, including copper. We therefore think that copper has only a limited room for further gains though, at the same time, we perceive a sharp sell-off in mid January as exaggerated and we stick to our 2015Q2 forecast for average price of copper slightly below 6000 USD/t.

Chart of the day:

We perceive a sharp sell-off in mid January as exaggerated and we stick to our 2015Q2 forecast for average price of copper slightly below 6000 USD/t...