Commodities continue to struggle on weakening demand and supply pressures

Oil ended the day’s trade lower with US crude down 40 cents to US$73.69 (£46.79) per barrel, ahead of the crucial OPEC meeting later today (November 27th) in Vienna, where members are expected to decide on whether to reduce oil production to stabilise prices. 

The market is expecting no changes to supply, with the major Gulf producers expected to win the debate and maintain supply levels. This is not the result hoped for by smaller producers, such as Venezuela and Ecuador, who have been struggling in the tumbling price environment. 

Oil has declined significantly this year, down almost 30 per cent since June, largely due to lower demand in Europe and China, the stronger US dollar and the boom in US shale production.

Iron ore

The price of iron ore continued to slump, dipping to a five-year low of US$68 per tonne, as major producers including BHP Billiton and Rio Tinto continue to pump supply into the market, despite weakening demand from China. 

Iron ore has now fallen 50 per cent over the past 12 months, reaching what is considered to be close to break-even point. Several smaller producers in Australia have signalled a shut-down in production, with only the largest producers seemingly able to compete at these pricing levels, thanks to their large scale and cost-cutting expertise. 

Gold

Gold prices opened the day’s trade marginally higher at £758.96 per ounce at 10:30 GMT, ahead of a key pricing decision in Switzerland at the weekend. On Sunday, the Swiss will hold a referendum on whether the nation’s central bank should more than double its gold reserves. 

The market consensus is that it is unlikely to pass, with a continued downtrend in gold prices expected. Goldman Sachs is sticking to its bearish forecast with a year-end target of US$1,050 an ounce, as reported in Bloomberg last week. If the Swiss surprise, gold prices could spike globally, with some analysts forecasting an increase of more than US$50 per ounce. 

Find out about commodities trading at City Index.