Oil:
Last week, oil rose to near $120 a barrel in New York as the dollar dropped to an all time low against the euro, kindling interest in commodities as an inflation hedge. The dollar touched $1.60 per euro for the first time on signs the European Central Bank will not cut interest rates because of inflation concerns. Dollar-based commodities like oil are often bought to counter the currency’s weakness. Oil also rose on a UK strike threat and a Nigerian supply disruption.
After an attack on a pipeline by Nigerian militants, Shell has closed 169,000 barrels a day of crude production and declared force majeure on Bonny Light exports for April and May. The outlook for long-term supplies darkened as Saudi Arabia confirmed it would put on hold any further capacity expansion plans, beyond the 12.5 million barrels per day target the kingdom is expected to reach by next year.
The International Monetary Fund warned that commodity prices, especially those for food and energy, had reached levels where they risked becoming a destabilizisg force in the global economy.
Chinese demand for oil is accelerating ahead of the Olympics with crude oil imports up by almost a quarter to 4.07 million barrels a day in March, compared with the same month las t year. For the first quarter, crude imports rose by 14 per cent compared with the same period last year.
Opec ministers have continued to blame rising oil prices on speculators and the weakness in the dollar at this week’s meeting of the International Energy Forum in Rome. But in an effort to reassure the market, Opec’s secretary general highlighted the cartel’s plans to expand capacity.
They are investing to increase capacity and have 120 projects worth $160 billion just to increase capacity by five million barrels a day to 2012. However, Opec has no plans to meet before September, suggesting little prospect of any relief on supplies before then.
China intends to provide monthly subsidies to Petro-China and Sinopec to compensate for increasing losses to refining by means of a reduction in value-added taxes on crude imports. Sinopec plans to import 120 million tonnes of crude this year. Analysts estimated that the tax before rebate could cost $10 billion if oil prices were to stay at $100.
Oil prices have eased from record highs, as traders anticipated a rise in crude oil stocks in the world’s top energy consumer the United States. Rising fuel production from US refineries dragged down crude from its record peak of $120 a barrel.
Gold:
Gold prices have steadied in Europe after hitting an historic high of $1030.80 an ounce on March 17. Gold is expected to hold somewhere between $910 and $930 level.
Investors kept an eye on the energy for direction. Oil hit a record high above $117 a barrel because of worries about supply disruptions from major producers and comments by Opec reiterating there was no need to raise output.
Gold is generally seen as a hedge against oil-led inflation. The metal also moves in the opposite direction of the dollar, as a weaker US currency makes gold cheaper for holders of other currencies and often lifts bullion demand.
Tin/Copper:
In the London market, tin rose over 6 per cent on April 23, hitting a record high on persistent supply woes, while copper prices were underpinned by a strike in Chile. Three months tin hit a record of $24000 a tonne. With no end to the low stocks and supply concerns in Indonesia and China, there was little that could stop tin from surging even higher.
Copper prices which had risen to a record high of $8,880 a week earlier has since come down to $8,695 a tonne. Traders and analysts expect limited losses for copper as a strike at the world’s biggest producer and low levels of stockpiled metal, underpinned prices.
Strike at state-owned Codelco, caused the firms’ Salvador and Andina divisions to shut down. Output at those divisions remains paralyzed due to strike. Andina produced 218,000 tonnes and Salvador produced 64000 tonnes of copper last year.
Copper was steady on April 24, as support from supply disruptions in Chile was balanced by selling pressure from a stronger dollar, while tin hit a record high. Copper for three-months delivery on the London Metal Exchange closed at $8,525 a tonne, down $30 from April 23. The metal, used extensively in buildings and electrical goods, is only around $300 below the all-time high it touched last week.
A higher US currency makes base metals priced in dollars more expensive for holders of other currencies. Several analysts and traders say the strike at the world’s biggest copper producer Cadelco will continue to underpin copper prices, but lack of Chinese buying is preventing the metal from testing new highs.
Tin hit a contract high of $24,600 a tonne on worries about supply from China and Indonesia, the world’s top two producers, and falling stocks. It closed at $23,700, down $400 from April 23, close of $24,100, but still up by more than 40 per cent since the start of the year.
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