Oil

IN the New York market, crude oil futures dropped on May 31 by more than one per cent, ending May with their biggest monthly decline in more than three years as bloated US stockpiles and weak economic data added to worries about the euro zone crisis, all dampening oil demand prospects.

Crude futures slumped to seven-month intraday lows after official data showed that US crude oil stockpiles swelled last week, hitting the highest level in nearly 22 years. Oil prices trudged downwards earlier on disappointing US economic reports that worsened the outlook for global oil demand prospects, already dampened by the worsening euro zone crisis, and slower growth in China and India.

In the New York market, oil dropped more than 3 per cent on May 30 to the lowest level in nearly six months as fears about the euro zone crisis sparked an erosion in risk appetite across markets. Prices for Brent and US benchmark West Texas Intermediate crude futures headed toward their biggest monthly drop since the financial crisis of 2008, with US oil breaking below a key technical level as investors headed to perceived safe havens. Worries about Europe mounted as borrowing costs rose for Spain and Italy the latest poll showed a lead for Greece’s left-leaning, anti- austerity parties ahead of next month’s election.

The crisis, which could dent fuel demand, has helped knock Brent prices down to nearly $100 per barrel, far off 2012 peaks over $128 hit in early March. Equities and other commodities, including industrial metals platinum and copper, also fell. Wall Street stocks fell more than 1 per cent, with European equities also posting sharp losses, while US treasuries rallied, sending yields of benchmark 10-year notes to a 60-year low.

Brent July crude fell $3.21 to $103.47 a barrel, the lowest settlement since December 16. Brent prices are down more than $15 a barrel so far in May, heading for the biggest monthly decline since October 2008, a month after the collapse of Lehman Brothers. US July crude slumped $2.94 to $87.82 a barrel, the lowest settlement since October 21, 2011. Front-month crude prices were headed for a loss of more than 17 per cent for May, marking the biggest monthly drop since October 2008.

US crude inventories fell by 353,000 barrels last week, according to industry group the American Petroleum Institute’s weekly report against expectations stocks had risen. Stocks at the Cushing, Oklahoma, delivery point for the US crude contract, fell 557,000 barrels in the first data after the Seaway pipeline reversal to take crude from the Midwest to the US Gulf Coast. Gasoline stocks rose 2.1 million barrels and distillate stocks fell 1.3 million barrels, the API said.

Iran, Opec’s second-largest producer, faces Western sanctions including an oil embargo starting July 1 aimed at persuading it to stop enriching uranium. The Persian Gulf nation has increased its stockpile of 20 per cent medium-enriched uranium by a third since February, the UN’s International Atomic Energy Agency said in a May 25 report.

Iran and Western negotiators will hold another round of talks about the country’s nuclear program in June after failing to reach an agreement at a summit in Baghdad last month. The government in Tehran faces four set of United Nations sanctions urging the country to stop enriching uranium.

Gold

IN the London market, gold was slightly up at $1565 an ounce on May 31, as soft US first-quarter growth and weekly jobless claims data pressured the dollar, but last month’s sharp drop in the euro kept the metal on track for its worst May performance in 30 years.

Gold, which has fallen six per cent in May, has been outshone by low-risk assets including US Treasuries and German Bonds amid fears of Greece’s exit from the euro zone and growing debt trouble in Spain.

Concerns over Spain’s banking system, a surge in Italian borrowing costs and Greek elections that may determine whether it stays in the euro zone have sent investors fleeing to the safety of the dollar this month.

The precious metal is down nearly six per cent so far this month, its biggest May loss since a near 10 per cent fall in 1982. The metal is also set to post a fourth consecutive monthly loss for the first time since January 2000.

Investors had pinned hopes on further monetary easing by central banks to keep lending costs low, which would raise the inflation outlook and so benefit gold, but the lack of easing prospects in the short term has kept sentiment subdued. The price of gold has lost $100 in the last four weeks and is about even since the start of the year. It was down 6 per cent in May, its biggest monthly decline since December. The safe-haven metal actually fell more than other commodities on jitters surrounding the European sovereign debt crisis.

Gold demand from its traditional leading consumers in India has been light this year as the weak rupee lifts its cost for local buyers.

However, central banks have been keen to buy gold in a bid to diversify forex reserves. Russia, Mexico and the Philippines have all recently added to their gold reserves, and the Turkish Central Bank said recently it may gradually raise the upper limit of lira required reserves that can be held in gold to 30 per cent from 20 per cent.

Nickel

After slumping more than any other industrial metal, analysts and traders say the worst may be over for nickel as restrictions on shipments from Indonesia, the biggest producer, diminish a worldwide glut. Indonesia banned some ore exports from May 6 and imposed a 20 per cent tax on the remainder to spur the development of its refining industry. The nation’s output will drop for the first time in four years in 2013, slashing global supply growth to 0.2 per cent, from 4.9 per cent in 2012, Morgan Stanley estimates. Prices will average $20,000 a metric ton in the fourth quarter, an increase of 22 per cent, the median of 16 analyst estimates compiled by Bloomberg shows.

The metal fell 12 per cent this year on prospects for the biggest surplus since 2009. Morgan Stanley now predicts the glut will peak in 2012 and Barclays Plc says prices should rally toward the end of the year on strengthening demand from stainless-steel makers, the biggest consumers. The rebound may not happen until then as China runs down record ore stockpiles accumulated in anticipation of the Indonesian ban.

Nickel extended its drop last week and was 12 per cent lower for the year at $16,410 on the London Metal Exchange. The LMEX index of six industrial metals was down 2.1 per cent and the Standard & Poor’s GSCI gauge of 24 commodities fell 6.1 per cent.

The glut will contract 36,900 tons next year, equal to a week of demand, from 46,600 tons in 2012, Morgan Stanley said in a March report. Prices rallied 58 per cent in 2009 as the surplus declined to 98,200 tons from 100,300 tons.

Indonesia banned exports of 21 unprocessed minerals, except for companies planning to build local refineries. Those shipments are subject to a 20 per cent tax. National exports of nickel ore may drop as much as 20 per cent in the second half. China grew 8.1 per cent in the first quarter, the slowest pace in almost three years, and the 17-nation euro region stagnated, government data show. Nickel consumption contracted for three consecutive years before rebounding in 2010 as nations emerged from recession.

The predicted gain in prices to $20,000 would still be short of the record $51,800 reached in 2007. Norilsk Nickel will report net income of 133.7 billion rubles ($4.15 billion) this year, from 143.1 billion rubles in 2011.

New technology adopted by China’s makers of nickel pig iron, a substitute made from lower-grade ores, is driving down output costs, decreasing the likelihood of production cuts as prices slump. Average NPI overheads are now $16,500 a ton, from $17,300 last year. China’s imports of nickel ore from Indonesia climbed 15 per cent to a record 3.34 million tons in April.

Global stainless-steel production will rise by almost 6 per cent to 34 million tons this year. That compares with 3.3 per cent in 2011, the Sheffield, England-based consultant said. Growth will be weighted toward the end of the year, with analysts forecasting a fourth-quarter gain of 13 per cent, from a 0.1 per cent contraction in the first three months of the year.