Brent crude dipped below $108 a barrel on Thursday

Brent crude dipped below $108 a barrel on Thursday as unseasonably weak demand from European refiners and plentiful supplies offset strong Chinese factory data.

Brent for September delivery was down 30 cents at $107.73 a barrel by 1117 GMT, after closing 70 cents higher on Wednesday. U.S. crude was down 28 cents at $102.84 a barrel, after gaining 73 cents in the previous session.

"Oil is moving in a small range. It opened relatively high and was supported in Asia on the back of the Chinese/HSBC data," said Ole Hansen, senior commodity strategist at Saxo Bank.

"But Brent is in contango, reflecting weak demand from European refiners," Hansen added. Contango is a situation in which the price of oil for near-term delivery is cheaper than that for delivery further into the future.

China's factory activity expanded at its fastest in 18 months in July as new orders surged, a preliminary HSBC survey showed.  China is the world's second-biggest oil consumer, so the data is positive for demand.

However, the picture in Europe is more sobering as refiners remain under pressure due to an influx of oil products from the United States. European refiners have been cutting runs at what should be one of the busiest times of the year, or idling plants altogether.

"The market is comfortably supplied with seasonal demand in Europe still slackening despite a slight improvement to refinery margins," said Andrey Kryuchenkov, oil analyst at VTB Capital.

Physical crude prices are under pressure as a result, with West African and North Sea barrels selling slowly even at bargain levels.

These weak fundamentals filtered through to the futures market earlier this month, triggering heavy liquidation of hedge funds' long positions. Analysts and traders said the market was now in a consolidation phase, moving sideways.

"The longs liquidation in London drove the market to three-month lows earlier this month and it is only natural for the market to take a breather," Kryuchenkov said.

Prices had pushed higher on Wednesday after data from the U.S. Energy Information Administration showed that U.S. crude stocks fell by 4 million barrels last week. Analysts had expected a decrease of just 2.8 million barrels. [EIA/S]

Crude stocks at the Cushing, Oklahoma delivery hub for U.S. benchmark oil fell by 1.5 million barrels.


NO SUPPLY CONSTRAINTS

Conflicts in Eastern Europe and the Middle East are also keeping a floor under prices, but crude supply from Iraq remains unaffected by fighting in the country.

Analysts foresee no sustained gains in oil prices unless supply is disrupted, but some believe the market has become complacent about the risks.

"When the battle for Baghdad starts, then Iraq will be back as a price input," Olivier Jakob, an oil analyst at Petromatrix, told Reuters' Global Oil Forum. "Right now it is too low on the radar screen."

In another supply development, South Korea and Japan have purchased the first condensate cargoes to be exported from the United States since the easing of a 40-year ban on U.S. crude exports.

"It means very little in itself, but because of current events it takes on a more political or symbolic importance," said Alex Yap, a senior oil analyst at FG Energy.

"If the U.S. wants its allies to be less dependent on the likes of Russia and Iran, it has to show some willingness to step up as a supplier instead of keeping the bounty from shale production within its own market."
Reuters

Copper, zinc gain as China's factory growth rebounds

Copper climbed to its highest in 10 days and zinc hit a near three-year peak after better-than-expected Chinese factory data calmed fears about economic growth in the world's biggest metals consumer.

News that China's factory sector grew at the fastest clip in 18 months in July prompted investors to shrug off news that Indonesia may soon resume copper concentrate exports that could smooth out kinks in supply. 

"This is a good number and the market reaction is saying that the worst is over of the slowdown and we're not headed for a hard landing," said Stephen Briggs, metals strategist at BNP Paribas in London.

China accounts for about 40 percent of global copper demand, but slowing growth in manufacturing and property has dragged on the demand outlook for the metal while a surplus is expected to seep into the market in the second half of the year.

Three-month copper was the top gainer on the London Metal Exchange, climbing as high as $7,166.50 a tonne, its loftiest since July 14.

It failed to trade in official midday open outcry activity and was last bid up 1.3 percent at $7,140 after closing little changed in previous session.

The most-traded copper contract on the Shanghai Futures Exchange closed up 1.5 percent at 50,650 yuan ($8,200).


"Copper is particularly exposed to the property sector in China, which has been the worry area, and copper has clearly underperformed the sector over the past few weeks so it was more due an upside correction," Briggs said.

The market also absorbed more upbeat news from the euro zone, where surveys showed the private sector expanded at the fastest rate in three months in July.
There was also support from production issues at the world's biggest copper producer, Codelco, which admitted for the first time that its newest mine was behind schedule because of problems with its roaster.
But investors shrugged off a looming resumption in concentrate shipments from miners in major exporter Indonesia.

"Consensus was that they would probably resume exports this year. There just wasn't a lot of clarity over when," said analyst Joel Crane of Morgan Stanley in Melbourne.

A senior Indonesian official told Reuters that Jakarta will revise its rules on mineral export taxes next month, paving the way for the country's multi-billion dollar mining industry to resume full production. Freeport-McMoRan said it was close to signing a deal to resume exports.

ALUMINIUM, ZINC

LME zinc edged to a fourth consecutive near three-year top of $2,394 a tonne, before slightly paring gains in official rings to $2,390, a rise of 1.1 percent.

Aluminium failed to trade in official rings and was last bid up 1.0 percent at $2,035.50 a tonne, recovering some losses from Wednesday when it shed 1.3 percent.

The metal had gained about 10 percent since the start of the month until touching a near 17-month peak on Tuesday, as investors expected a deficit to hit the market after several years of surpluses.

But Paul Adkins of Beijing-based consultancy AZ China said the high prices were vulnerable since they were spurring Chinese smelters to restart production that had been closed.

"We still doubt the price surge phenomenon will be sustained, since most restarting plants are being backed by government subsidies. And overall, we are still concerned that fundamental demand drivers are not backing the current surge," he told the Reuters Global Base Metals Forum.

"Over-supply is still a concern, with more than 1 million tonnes due into the (Chinese) market by year-end."

Tin edged up 0.2 percent to $22,275 a tonne in official trading and lead climbed 0.9 percent to $2,227. Nickel failed to trade in official rings and was bid at $19,150, up 0.5 percent.

Reuters

European stocks rise on euro zone factory data

 European stocks hit 2 1/2-week highs and the euro rallied from eight-month lows against the dollar on Thursday after the region's private sector expanded at its fastest rate in three months in July.

Russian debt insurance costs rose after European Union leaders proposed sanctions on Russian banks which are majority-owned by the government. Those measures were proposed after a Malaysian Airlines plane was downed over Ukraine last week, killing 298, possibly by a missile furnished by Russia.

European stocks <.FTEU3> rose 0.4 percent and the euro hit the day's highs at $1.3484, pulling off eight-month lows, after Markit's Composite Purchasing Managers' Index (PMI) of companies across the euro zone, a good early indicator of overall growth, rose to 54.0 in July from 52.8, its highest since April. Any number above 50 indicates expansion.

The services sector across the 18-member bloc performed better than any of the 39 economists polled by Reuters had forecast. Manufacturers also reported a stronger month than the median Reuters forecast had predicted.

"The activity data offsets some of the weakness we saw last month and that has helped the euro," said Geoff Yu, a currency strategist at UBS.

The dollar index <.DXY> dropped from an earlier six-week peak, although the U.S. currency hit a one-week high against the yen at 101.64 .

Russia's five-year credit default swaps rose 17 basis points to 214 bps from earlier on Thursday, according to Markit, following the EU sanctions proposals, which the EU said were likely to be adopted next week.

That means it costs $214,000 a year for five years to insure $10 million of Russian debt against default. Russian government bonds fell.

"If the Europeans do manage to pass some of the new sanctions that are being talked about, and it's a big if, then it really would be a big step for Europe," said Viktor Szabo, portfolio manager at Aberdeen Asset Management.

Emerging-market stocks  rose 0.25 percent to 17-month highs after stronger-than-expected HSBC flash PMI data for China, the world's second-largest economy.

The index came in at 52.0 for July, well above forecasts and the highest reading in 18 months. There was also good news on the outlook, with a sub-index of new orders reaching 53.7.
U.S. stock futures were indicating a higher open on Wall Street after the S&P 500's record close on Wednesday. Those gains were powered by Apple Inc , while late trading was dominated by Facebook Inc , whose shares rose 5.5 percent after hours when its results beat forecasts.

A better-than-expected U.S. earnings season is helping sentiment generally. Barclays estimates that of the 22 percent of S&P 500 companies that have reported quarterly results since July 1, 64 percent beat earnings expectations and 65 percent beat revenue estimates.

The prospect of more sanctions against Russia over the Ukraine crisis maintained a safety bid for high-rated bonds.

For U.S. Treasuries, investors were buying more liquid shorter-dated paper, nudging two-year yields below 0.48 percent. But German Bund yields , which have been trading near record lows, edged up on the euro zone data to 1.170 percent.

Gold eased to 1,298.30 an ounce, close to earlier one-week lows.

Crude oil prices ran into renewed selling after a bounce on Wednesday. Brent crude for September delivery fell 26 cents to $107.77 a barrel. U.S. crude lost 28 cents to $102.84.

Reuters

Jobless claims lowest in more than eight years

The number of unemployed workers applying for jobless benefits tumbled in the most recent weekly data to the lowest level in more than eight years, signaling that employers are letting go of very few workers.

Applicants for regular state unemployment-insurance benefits in the week that ended July 19 dropped by 19,000 to 284,000 — the lowest level since February 2006, the U.S.Labor Department reported Thursday. Economists surveyed by MarketWatch had expected initial claims of 310,000 in the most recent weekly data.

The yield on the 10-year Treasury   edged higher, indicating traders growing slightly more confident in the economy.

Source: Marketwatch