LONDON: Oil is set to keep outperforming copper due to tighter supply and the potential of OPEC production cuts, but it would likely slump along with the benchmark industrial metal if the world falls into a recession.
Both commodities, key inputs for the global economy, are strongly exposed to faltering growth, but their performances have diverged sharply.
Since the start of August, copper has sunk by 24 per cent while Brent crude oil has declined by 10 per cent.
The year-to-date performance is just as dramatic: Brent is still in positive territory by 11 per cent while copper is down 21 per cent.
"Crude prices have a lot more intrinsic support from mechanisms already in the market," said Nic Brown, head of commodities research at Natixis.
"Whereas you can see OPEC would start to cut back output in order to restrain a fall in oil prices, there is no central body in the copper market that's going to do that."
OPEC members require a higher oil price of around $100-$110 a barrel, up from $75-$80, to balance their budgets due to heavy spending, including by Mideast countries splashing out on domestic populations to head off unrest, Brown added.
The structure of both markets belies the tighter supply situation in the oil market, which suffered the loss of Libyan supplies this year and is waiting for the interim rulers to restart the flow of crude.
Nearby Brent oil prices flipped to a premium over longer dated futures earlier this year, showing the restricted supply situation while concerns have escalated over whether there are "hidden" copper inventories weighing on the market.
