Oil prices have dropped by around 1% so far on Tuesday as Brent Crude and U.S Light Crude both lost 55 cents to a barrel, down to $47.69 and $46.53 respectively. The technical meeting that took place yesterday between OPEC members failed to agree details for a potential cut. While there is apparently broad acceptance that a cut would be in the best interests of OPEC members, the major stumbling block is proving to be which countries would cut production by what quantity. With little progress seemingly made on that front, an eventual deal would require ‘intense’ negotiations on Wednesday.
Russia, who is not a member of OPEC, confirmed that they would not be part of the current summit, though left the possibility of a future meeting between OPEC and non-affiliated oil producers such as Russia open. Market observers and analysts, however, now believe the chance of an output cap being agreed upon is small. Reuters quotes analysts at Barclays as stating that high oil price volatility should be expected in the coming days. If a cut is agreed, it would be expected that oil would quickly rise to above $50 a barrel, but if not, an average of around $45 should be expected through to next summer. Further compromising a potential deal is pressure coming from Asia, OPEC’s biggest market. Importers there have suggested that they will not be happy with an artificial cap pushing up prices and may look towards increasing purchases from other producers at the expense of OPEC exporters if a cap is put in place.
During the Asian trading session gold price crept lower as the dollar registered gains again and the precious metals complex was also down 0.2% on the LME in London this morning. The longer term outlook for gold and precious metals from Fastmarkets is bearish. The metals market information specialist thinks that investors will resume risk-on positions next year due to the increased growth outlook and ‘gradually unwind’ positions in haven assets such as precious metals. Base metals, however, are likely to see the opposite trend with investors increasing their exposure.
In London this morning, however, base metals slid back a little after several days of gains, with profit taking seeing the copper price* drop by 2%. **Zinc price** also dropped 2.1% in London yesterday with tin the only base metal registering a positive result, up *0.5%.