Oil prices surged towards $100 a barrel last week after Pakistan’s ex-prime minister Benazir Bhutto was killed. Her death also sent funds flowing away from equities and into precious metals as investors sought a safer haven for their cash amid fears of spreading turmoil in the region.
The price of crude has sky-rocketed this year from a low point of just below $50 per barrel in January, propelled by tense geopolitical tensions and sliding US energy inventories. Dealers said Bhutto’s killing would have a psychological impact on the market even though the country is not an oil producer.
Prices were also bolstered after the US Department of Energy said American crude reserves tumbled by 3.3 million barrels in the week ended December 21. That marked the sixth weekly decline in a row and was almost double market expectations of a 1.75-million-barrel drop. The United States is the world’s biggest energy consumer.
Crude oil prices briefly hit the $100 a barrel mark on January 2, as investors poured money into commodities following deepening fears about the weakness of the US dollar. The $100-a-barrel level was reached as the result of a single trade by two independent traders -- known as locals – at the Nymex floor, industry sources said.
Prices before the trade were at $99.53 a barrel. In spite of the controversy around the single trade at $100 a barrel – the crude oil market was on January 2 night trading in New York as $99.65 a barrel.
Crude oil prices were boosted by renewed tension in Nigeria, Africa’s biggest oil producer, and news that Chinese refineries are running at record levels to offset a gasoline shortage, to hit $100 a barrel, up $4.02 on the day. The White House said George W. Bush, president, would not tap the US strategic petroleum reserve to ease prices.
Crude oil was up 39 per cent in 2007. This made crude oil the third best performing market in 2007. The International Energy Agency recently increased its estimate of 2008 world oil demand to 87.8 million barrels per day.
A newly published report by Organisation of Petroleum Exporting Countries indicates the group will be much harder pressed than previously thought to meet the world’s surging oil needs and could realistically fail to supply its share of global oil markets by 2037. The report in the December issue of the Opec Review, is published by the organisation’s Vienna-based Secretariat.
While non-Opec oil producers like Canada, Russia and others are boosting output, it is assumed that they will be unable to produce enough to meet the world’s rapidly growing appetite for oil. Opec members, currently responsible for 40 per cent of world oil output, are expected to meet the shortfall and provide most of the increased supply.
The study maps out three scenarios, which show Opec could find itself unable to meet its share of global oil demand by either 2048, 2037 or 2024 depending on how quickly its members ramp up output. If there is a drastic increase in oil demand from industrialising countries, such as China and India in the next two decades. Under that scenario, Indonesia, Algeria and Nigeria will fail to produce their share by 2009, 2022 and 2026, respectively, forcing other countries to make up the difference.
A separate scenario with a lower annual average production growth rate of 2.7 per cent shows that Opec could hold out until 2048 before it finds itself unable to shoulder its share of oil supply. The final scenario — based on calculations using the average growth rate of production for each member in the last 25 years — brings the date up to 2024.
The report acknowledges that the projections could be swayed by unpredictable factors, including changes in economic growth rates in the developing world that could greatly affect oil demand growth and future exploration that could boost Opec’s proven reserves.
On December 28, gold rose to a one month high, bolstered by stronger oil prices, dollar weakness and worries over geopolitical risks in Pakistan and northern Iraq. Gold, traditionally seen as a safe-haven asset, jumped the day following the death of Pakistan’s ex-prime minister Benazir Bhutto. The metal rose to a 28 year high above $845 in November — just shy of its historical high of $850 on a tumbling dollar and firm oil prices. Gold got support from the events in Pakistan.
A weaker dollar makes gold cheaper for holders of other currencies and often lifts bullion demand. The metal is also generally seen as a hedge against oil led inflation. During the first trading session of the new year, gold rose 3.3 per cent to $861.10 a troy ounce, surpassing the previous high of $850 reached in January 1980. The metal later eased back to $858.10 in late London trading.
Gold also found support from renewed dollar weakness after the influential ISM manufacturing survey indicated that industrial activity contracted in December, fuelling fears that the US economy could be dragged into recession as weakness in the housing market spreads into other sectors. Gold’s strength spilled over into platinum, which rose 1.6 per cent to $1,544 a troy ounce. The outlook for platinum still remains incredibly bullish.
The price has been firm since November because of concern about deliveries from South Africa, the biggest producer of the white metal, where production has been affected by accidents and a general strike by miners. Platinum gained about 37 per cent in value in 2007, while palladium rose by more than 12 per cent.
Nickel will lead a decline in industrial metals next year as stockpiles expand and demand slows with the US housing market, a survey of analysts showed.
Nickel for immediate delivery will average $29,500 a metric tonne next year on the London Metal Exchange, according to the median of 19 analysts surveyed by Bloomberg News in December. The price is 21 per cent below last year’s average and 46 per cent less than the record set in May. Lead will be the best performer for a second year, with a 4 per cent gain, the survey showed.
Industrial metals are falling for the first time since 2001 as the deteriorating US housing market curbs demand for copper, zinc and tin. Copper inventories increased 8.5 per cent this year and are four times higher than at the end of 2004. Nickel is the second-worst performer among the six metals traded on the LME, falling 24 per cent to $25,805 a metric ton. Zinc fell the most, losing 47 per cent to $2,290 a tonne.
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