In the US, crude oil production and refining capacity in the Gulf of Mexico area remains severely constrained following hurricanes Gustav and Ike.

On September 22, crude oil prices jumped more than $14 a barrel — the largest one-day rise in dollar terms ever, ahead of the expiry of a futures contract and amid concerns that the US currency would weaken.

The jump in oil prices to an intraday high of $119.50 a barrel was exacerbated by a squeeze ahead of the expiry of the current front-month October futures contract at Nymex, which forced some financial investors to cover their positions at any price to avoid taking physical delivery.

Oil’s rise also led to an across-the-board increase in commodities prices, with gold prices soaring above $900 an ounce.

The surge in commodities prices as a function of dollar weakness signals that the US Federal Reserve faces a delicate balancing act as the government’s $700 billion rescue of Wall Street banks could complicate its efforts to fight inflation.

Nymex October West Texas Intermediate crude oil, surged more than $14 to a high of $119.50 a barrel, recovery more than $25 from preceding week’s low of $90.51.

Traders said the surge in oil prices – and the strong price difference between October and November contracts – signaled the market was finally reacting to the damage inflicted by hurricanes Ike and Gustav in the Gulf of Mexico. The US government said about 995,000 barrels a day of oil production remained shut down in the Gulf.

Bullish sentiment was exacerbated by news that Mexican oil production dropped in August and signals that Saudi Arabia, the world’s largest oil producers, has started to cut supply.

On September 23, oil prices retreated after a record one-day rise. Nymex November West Texas Intermediate crude fell $2.77 to 106.60 a barrel while ICE November Brent lost $2.74 at $103.30 a barrel. US oil companies continue to assess the damage to refining and production facilities in the Gulf of Mexico following hurricanes Gustav and Ike.

Prices drew further support from a report by Petrologistics that Opec oil supply fell by 800,000 barrels per day (bpd) in September due to lower output from members including Saudi Arabia and Iran.

The estimate suggests Opec was starting to cut back supplies to levels seen in July even before it agreed on September 10 to trim output to official targets to prop up prices.

Oil prices have dropped from a record peak above $147 a barrel in July as high fuel prices and mounting economic problems began to curb demand in the United States and other top consumers.

Opec in its latest monthly report cut its forecast for oil demand growth this year and said it would monitor consumption closely ahead of the group’s next meeting in Algeria in December.

Gold

Gold prices fell below $900 an ounce on September 23, while platinum was off two-weeks high after posting the biggest one-day percentage gain in at least 23 years on September 22, while silver firmed to its highest level in three weeks, before losing some of the gains to profit taking.

Gold was trading at $895.00 an ounce, down $5.20 an ounce or 0.6 per cent from New York’s notional close on September 22, having hit an intraday high of $908.80 an ounce — its highest level since early August.

Gold last hovered around $870 and $880 in August. In theory, a weaker dollar boosts gold’s appeal as an alternative investment to currencies, stock markets and bonds.

Despite gold’s gains, dealers remained cautious, with the metal already moving in a wide range since tumbling to an 11-month low of $736 an ounce two weeks ago. Gold is way below a lifetime high of $1,030.80 hit in March.

Gold has benefited from a wave of risk aversion after US investment bank Lehman Brothers filed for bankruptcy protection.

UBS has increased it one-month gold price forecast to $925 from $850 previously and it three-month forecast to $975 from $900 previously.

Copper

Base metals prices moved lower with copper down 4.6 per cent to $6,980 a tonne while aluminium fell 1.7 per cent to $2,518 a tonne and lead lost 1.9 per cent at $1,982 a tonne.

The International Copper Study Group released data for June that indicated a modest supply surplus of 15,000 tonnes, following deficits in the five preceeding months. For the first half of this year, the ICSG said the market had a 130,000 tonne supply deficit, shrinking from a shortfall of 265,000 tonnes in the same period in 2007.

China’s copper consumption is decelerating so imports are lower than last year and this has eased pressure on the global market. Standard Chartered expects growth in Chinese copper consumption to slow to seven per cent this year from 16.5 per cent in 2007 and has cut its forecast for London three-month copper prices for the fourth quarter to $7,000 a tonne form $7,300 previously.

In China, the Shanghai Futures Exchange is to temporarily raise minimum margin requirements on commodity futures from 5 per cent to nine per cent in early October to reduce volatility.

On September 25, copper prices slipped and aluminium touched an 8-month low. Copper for delivery in three months on the London Metal Exchange hit a one-week low of $6,835 per tonne.

Copper, mainly used in the power and construction sectors, has shed 24 per cent since it hit a record of $8,940 in July.

The market is focused on US Treasury and Federal Reserve officials wrangling with the US congress to win approval for a financial markets bailout plan, which could influence the long-term outlook for metal consumption.

London Metal Exchange (LME) copper stocks fell another 525 tonnes, but at 200,525 tonnes they are still two thirds higher than in mid-June. Aluminium eased to $2,485 against September 24 close of $2,503.

Earlier the light metal, used in the power, transport and packaging industries, fell 1.3 per cent to $2,470 — the lowest since January 25.

LME inventories have surged more than 20 per cent since mid-August to stand at 1.37 million tonnes, enough for 13 days of world consumption.