Oil:
Oil prices have risen to $111 a barrel, the seventh straight rise in the week. A weak dollar overshadowed an increase in US crude inventories.
The US Federal Reserve announced a new effort with other central banks to add up to $200 billion to strained credit markets, boosting stocks and helping the dollar rally.
The Fed said it was expanding a securities lending programme and will accept a broader base of securities as collateral, including many mortgage bonds whose value has declined as the housing bubble burst.
The dollar rose nearly a full yen, and trimmed its losses against the euro. The euro rallied to an all-time high against the struggling dollar earlier on March 11, anticipating more interest cuts by the Federal Reserve to boost the flagging economy in the United States, the world’s top energy consumer.
Oil prices had dipped slightly after the International Energy Agency said world oil demand would be less than expected this year because of slower economic growth in industrialized countries and record prices. But the agency also said only a severe recession would push oil back below $60 a barrel.
A week earlier, oil had risen to near $106, prompted by a drop in US oil inventories and Opec’s decision to keep output unchanged. On March 5, US crude had settled $5.00 higher after US Energy Information Administration data showed a 3.1 million barrel drop in crude stocks, against analysts’ forecast for an increase.
Distillate inventories, including heating oil, fell 4.8 million barrels, dropping for the fourth consecutive week as colder weather boosted heating demand in the US Northeast. Gasoline stocks rose again to another 14-year high. Citigroup said that US crude and product stocks altogether fell 4.5 million barrels, while a seasonal norm for this time of the year was a 3.3 million barrel drop.
The weak US currency encourages demand for dollar-priced commodities like oil because it makes them cheaper for buyers using other currencies.
The US Department of Energy announced on March 5 that American crude reserves tumbled by 3.1 million barrels in the week ending February 27. That snapped a seven-week run of gains and confounded market expectations for a gain of 2.4 million barrels.
In addition, the market faced pressure after the Opec oil exporters’ group decided to hold output ON March 5, shrugging off US demands to pump more oil and dampen soaring prices. The Organisation of Petroleum Exporting Countries, which produces 40 per cent of the world’s oil, decided at an output policy meeting in Vienna to maintain its daily crude production target of 29.67 million barrels. Opec blamed the high cost of crude on speculative buying as investors sought a haven from rising inflation and a weak dollar.
Gold:
In the New York market, gold has crossed $1000 for the first time.
Gold continues to shine as output losses add to its positive outlook. Alongside, external price drivers such as continued dollar weakness, inflationary and recessionary fears, Fed rate easing and geopolitical tensions, supply losses are likely to support the upward trend in prices.
Gold has gained nearly 20 per cent in 2008 as funds, speculators and investors pour money into precious metals on expectation of further interest rate cuts in the US and record high oil, which lift its save haven appeal. Gold has also jumped in other currencies, which is often seen as a bullish sign.
Silver struck a 27 year high above $21 on strong speculative buying.
Meanwhile, platinum hit a new historic peak of $2301.50 per ounce, before pulling lower on profit taking. Power shortages in South Africa have had an effect on the market, given South Africa is responsible for four-fifths of global mine production. Platinum’s sister metal palladium hit a six year high of $595 per ounce in the week ended March 9, before ending in negative territory.
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