Oil
In the New York market, oil prices fell to near 12 month lows below $85 on October 9. Prices have fallen from a record peak of $147 a barrel in July. Prices have weakened after the latest US weekly inventories data showed a recovery in activity following recent interruptions from hurricanes, combined with further clear evidence of weak demand.
Total US demand averaged 18.66 million barrels a day, down 8.6 per cent against the same period a year ago. US crude stocks rose by 8.1 million barrels last week, well above the consensus forecast for a rise of 2.3 million barrels. Nymex November West Texas Intermediate fell $3.30 to $86.76 a barrel after reaching a high of $90.99 shortly after the rate cuts news. ICE November Brent dropped $2.96 to $81.70 a barrel after touching $81.00, the lowest level for a year.
Opec is considering a meeting in November to discuss the global oil market in light of the financial crisis, leading to speculation that the cartel might cut output to support crude prices.
Further pressure on energy prices has come as investors, who earlier this year piled into oil and other commodities as a hedge against inflation and the weak dollar, sought to put cash into safer havens. The slumping economy has prompted analysts to revise downward their global oil demand growth targets for next year, with the EIA dropping its 2009 projection by 140,000 barrels per day.
In addition, No.2 consumer China — one of the engines behind the six-year rally in oil prices — is expected to halt auto fuel imports in October for the second month in a row.
Early October the US Department of Energy said that US crude stock pipes rose 4.3 million barrels in the week ending September 26, surprising a market which had been expecting a fall of around 1.7 million barrels. The DoE said gasoline (petrol) stockpiles increased by 900,000 barrels. Opec oil supply in September fell, the first monthly decline since April, as violence in Nigeria cut output and top exporter Saudi Arabia trimmed production.
Output from the Organisation of the Petroleum Exporting Countries, source of two in every five barrels of oil, was falling even before it agreed at a meeting in September to trim output and prop up prices. Supply from all 13 Opec members fell to 32.39 million barrels per day in September from 32.70 million bpd in August according to the survey of oil firms, Opec officials and analysts.
The decline was due to supply disruptions in two of Opec’s African members, and lower shipments to customers from the group’s top two producers Saudi Arabia and Iran. Attacks on Nigeria’s oil industry curbed output by 60,000 bpd, the survey found. During one six-day period in September, militants bombed pipelines, platforms, gas plants and oil-fields, halting up to 150,000 bpd of production. Angolan supply dropped because the BP Plc-led Plutonio field remained closed. The 200,000-bpd site shut on August 16, following an incident at a gas plant at the facility.
Gold
In recent days gold climbed, hitting a new all time high in euro terms, as fears over the outlook for the financial sector spurred buying and as the dollar weakened against the euro. In euro terms, gold rose to a new record of 654.22 euros an ounce, on October 7, up from 635.29 euro two days earlier.
Firmer oil prices also support gold. Crude rose more than $3 a barrel after a 100 basis point interest rate cut by the Bank of Australia raised hopes that other policymakers would follow suit, potentially boosting the economic outlook and consequently demand for crude.
A further spike in oil prices on reports that a US warplane violated Iran’s territory sent gold to session highs. However, both oil and gold retreated when the reports were downplayed. The dollar, a key external driver of gold, extended losses against the euro after steps from the Federal Reserve to backstop the US commercial paper market boosted risk appetite. The Fed said it is creating a special-purpose facility to buy commercial paper to calm chaotic financial markets.
Gold typically moves in the opposite direction to the dollar, as it is often bought as an alternative investment to the US currency.
Support for gold prices from the rocky economic situation looks set to remain firm, analysts say, with prices potentially climbing further if the outlook worsens. In the London market, on October 9, gold slipped as investors cashed in gains that took the metal to a nine day high, with a recovery in equity markets attracting investment back to stocks.
Platinum climbed, however, mirroring a recovery in many industrial metals, as a steadier outlook for the financial sector relieved downward pressure on the metal.
After fresh government and central bank action to combat the financial crisis, equities were higher. European stocks were higher and the US stock index futures also rose. A group of major central banks including the Federal Reserve and European Central Bank cut interest rates by 50 basis points on October 8, with South Korea, Hong Kong and Taiwan making cuts of their own a day later. Investors have been pulling cash out of stocks and shares in favour of so-called safer assets like bullion in recent weeks as the financial crisis has unfolded.
Copper
On October 7, in the London market, copper bounced from a 20 month low, along with equity markets, while wider economic fears dogged investors after banking shares took another battering.
A hefty rise of 9,600 tonnes in copper inventories earlier pushed the metal, used widely in construction, to a fresh 20-month low of $5,480 per tones. Stocks of copper in LME registered warehouses rose by 9,600 tonnes to 208,350 tonnes — their highest since February 2007, with between 80-90 per cent of them held by one entity.
Copper lost 7.5 per cent on October 7 when it hit its lowest since February 2007, extending a 15 per cent fall last week as the global credit crisis sent markets crashing. Copper was steady on October 9 as concerns about softer demand were partly offset by a slightly weaker dollar and a rebound in equities markets.
Three-month copper MCU3 on the London Metal Exchange was at $5,340 a tonne in official trading after earlier falling to $5,220 near a 2-½-year low. The metal, used in the power and construction industries, closed at $5,240 on October 8. Copper prices have slumped about 40 per cent from a record high of $8,940 a tonne reached on July 2.
Metals prices are taking their lead from equity markets in the current environment as an indicator for lower consumption and lower funding of industrial growth.
Zinc, lead, tin and nickel were all supported by expectations that prices near or below the marginal costs of production will likely force more output cuts from loss-making mining companies. Lead and zinc prices were also boosted by a Chinese local government decision to close smelters, in a move expected to cut China’s lead and zinc output by 20 per cent in the fourth quarter, after an accidental discharge of arsenic in southwestern China.
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