Oil price plunged by 6.65 % yesterday

Crude

Despite the fact that the dovish members of the OPEC (Saudi Arabia, UAE, Kuwait) signalled in advance they would not be willing to cut oil production to prop-up prices, the final decision of the cartel to leave production quota unchanged at 30 million barrels per day took the market by surprise, judging at least from its reaction.

Oil price plunged by 6.65 % yesterday, i.e. by the most in more than 3 years, and price of the front-month contract on Brent (ICE) thus dipped to a new four-year low (71.12 USD/bbl). Maybe even more importantly, the sell-off also continued in longer-dated contracts (which should better reflect mood among oil producers) and the forward curve thus fell significantly across all maturities. For example, price of December 2017 contract on Brent (ICE) fell by 3.5 % and also volume of trades was significantly above average (in comparison with the most recent months). This in our view clearly reflects producers’ worries about future market balance (and oil prices).

As we already pointed out, yesterday’s reaction suggests that significant part of market was probably taken by surprise by OPEC’s decision. From this point of view, we think that high volatility is likely to persist in weeks to come. Moreover, one canot exclude further price declines, maybe even below a 70 USD/bbl level (which seems to be a natural target now).

Base Metals

Today in early trading, the copper price falls below 6500 USD/t and the three-month contract is therefore set to post price decline in the fifth consecutive session. All in all, copper will likely post the largest weekly loss since March.

Apart from an overall bearish mood in commodity markets related to plunge in oil prices, news that a strike at the World’s sixth largest copper mine in Peru ends is dragging prices down.

Chart of the day:

The oil price plunged by more than 6% after the OPEC decided not to cut its production quota yesterday.