Oil
The price of a barrel of New York light sweet crude has fallen from a high of $147.50 a barrel on July 11 to $49.91 on November 20, which is the lowest since May 24, 2005 when prices hit $48.92. The price has fallen as a bearish US jobs report intensified concerns of a long and deep global recession and further crushed demand expectations.
Oil has tumbled nearly $100 from record highs over $147 a barrel struck in July, as the economic crisis strangles demand growth in large consuming nations such as the United States. As demand slumps, oil companies plan to store millions of barrels of crude in the hope economics will improve.
The London based Centre for Global Energy Studies forecast a contraction in global demand for the first time in 25 years amid a severe global economic slowdown.
Opec members have decided to hold meeting on November 29, in Cairo to discuss recent prices.
Last month Opec, which produces about 40 per cent of the world’s crude oil, decided to cut output by 1.5 million barrels a day from November, after crude oil prices dived from record peaks above 147 dollars in July.
It is likely that at the meeting Opec will make a similar decision in a bid to boost plunging oil prices.
Iran, Opec’s number two oil producer, favours a cut in crude production of 1.0 to 1.5 million barrels per day when the oil cartel meets in Cairo later this month,
There have been fresh calls to cut output from those countries within the oil producing cartel that are heavily dependent on oil revenues for their budgets like Iran, Ecuador and Qatar. Even Saudi Arabia which had initially opposed the 500,000 barrel a day cut last month appears to be in agreement that the group needs to reduce its production.
Opec had said that it would need to pump about 31.3 million barrels a day in the first quarter of next year to balance the market, well below its current output of 32.2 million b/d, suggesting that the cartel sees a need to cut output by almost 1 million b/d.
Ben Dell, of Sanford C. Bernstein a New York research firm, said Opec would need to make an additional cut of 1 million barrels a day in order to avoid a glut in the market in 2009.
Opec’s decision to meet came after investors sold commodities en masse amid worries that the credit crunch had mutated into a global toxic economic crisis that would damp demand for raw materials.
In its monthly report, the cartel said that even if governments were successful in unfreezing credit markets in the near future, “the fallout on the real economy from the financial market head-winds is expected to be considerable”.
Gold
Gold prices have risen in the last few days, after earlier falls. It was buoyed by interest from jewellery makers and investors seeking safety, but a stronger dollar against the euro and lower oil prices are expected to weigh on sentiment.
In the London market, spot gold was quoted at $748.25/$750.25 an ounce on November 20.
Data from the World Gold Council showing an 18 per cent jump in demand for gold to 1,334.4 tons and a 56 per cent rise in investment demand to 382.1 tons in the third quarter has helped sentiment.
Gold is used as a hedge against turmoil in financial markets — equity prices in Europe and the United States are trading at their lowest levels in more than five years.
It is also used as an alternative currency to the dollar when it is falling. But when the US currency is rising it makes metals denominated in dollars more expensive for holders of other currencies.The dollar hit a one-week high against the euro after the US Federal Reserve slashed growth forecasts for the world’s largest economy in 2009, which analysts say could mean deep interest rate cuts.
In the Singapore market, recent gains in the yen against the US dollar spurred buying from speculators in Japan, while physical demand kept premiums for gold bars steady in Singapore, Hong Kong and Tokyo.
Gold was trading at $737.80 an ounce, up $5.40 from late New York, levels on November 19, when it hit an intraday high of $762.30 an ounce due to early gains in oil.
A rout in Asia pushed world stocks to their lowest in 5-1/2 years on November 20, while oil dropped to below $53 a barrel and government bonds surged as economic data indicated a global recession could get even uglier. Gold was well below a lifetime high of $1,030.80 struck in March but dealers said falling prices also attracted buying.
Gold sales have slowed from central banks, the world’s largest holders. Sales plunged 87 per cent to 23 tons in the third quarter, the council said. Banks covered by the Central Bank Gold Agreement sold 357 tons of gold through September this year, the lowest since 1999. The People’s Bank of China is considering increasing its gold reserves by 4,000 tons from 600 tons.
Sales of gold coins and bars reached their highest levels for more than a decade in the third quarter while gold exchange traded funds saw record inflows as investors sought a safe haven from the crisis in financial markets following the collapse of Lehman Brothers, the US investment bank. The enormity of that rush into the gold market in the third quarter was revealed by the World Gold Council in its latest Gold Demand Trends report.
WGC said consumers spent more than $5.5 billion in buying 232.1 tons of gold coins and bars in the third quarter of 2008, an increase of 121 per cent in volume terms over the same period a year ago, and the strongest three-month period since the mid 1990s.
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