April 24, 2006	Monday	Rabi-ul-Awwal 25, 1427

Oil

Global oil prices were volatile for most of March before increasing steadily at the end of the month. As a result, the OPEC Reference Basket averaged $57.86/b for the month, a gain of $1.24 or over two per cent. Prices continued to move higher in April, with the Basket reaching a new record high of $65.02/b on 17 April. Crude prices have moved higher, despite rising crude inventory levels, the report said. In the week ended 7 April, the US crude stocks reached 346 mb, the highest level since 1998.

Oil prices touched a new record above $73 a barrel on April 20, amid concern about Iran’s nuclear ambitions and declining U.S. gasoline stocks. Light sweet crude for June delivery opened in electronic trading at a high of $73.50 a barrel - setting a new intraday record for a front-month contract on the New York Mercantile Exchange. It later eased to $72.98 a barrel, down 71 cents from a day earlier, amid some profit-taking.

The pullback appears to be due to profit-taking, which is not surprising considering prices have really surged in the past few days. The decline will not be large because the Iranian issue is keeping a high floor under prices. The May contract, which expired on April 20, fell 22 cents to settle at $71.95 a barrel. It had traded as high as $72.49 the day before.

The US crude oil prices hit the highest level for nearly eight months, as Iran’s pursuit of its nuclear programme heightened fears that the US might take military action against the oil-producing nation. The session peak was the highest since Hurricane Katrina battered oil infrastructure along the US Gulf Coast and drove US crude to a record of $70.85 on August 30 last year.

Tensions over Iran’s nuclear programme helped drive US benchmark oil prices ever closer to record highs this week. Analysts said weekend reports that Iran had expanded its uranium conversion facilities had unsettled sentiment, increasing the possibility of a confrontation with the US. Traders were also concerned about a tightening gasoline market and possible disruption to Nigerian production.

The European Brent crude oil, on the other hand, held firm near its $74 record-high after a steep drop in US gasoline stocks fuelled fears of tight summer supplies at a time of growing anxiety over Iran’s exports. IPE Brent crude traded down two cents to $73.71 a barrel, after matching the $74 record first hit on April 19, the seventh consecutive session to mark a new peak for the contract, the US May crude oil futures edged up three cents to $72.20 a barrel after soaring 1.15 per cent, hitting a second consecutive record-high of $72.40 a barrel.

Prices extended this month’s blistering run after the US government reported a larger-than-expected decline in weekly gasoline inventories of over 5 million barrels, a seventh weekly draw that put them nearly 5 per cent below last year’s level.

Tension over Iran’s resolve to expand its nuclear work kept prices on the boil as analyst’s fear the dispute could worsen, cutting shipments from the world’s fourth largest oil exporter.

Iran has said it does not plan to cut shipments. The country’s oil minister said that the Opec member was happy with high oil prices, displaying the Islamic Republic’s increasingly hawkish stance.

The perceived threat to Iranian supply comes on top of an actual disruption in Nigeria, where attacks by militants have cut the country’s output by almost a quarter. Nigerian militants killed two people in a car bomb attack on an army barracks in the oil city of Port Harcourt, extending an onslaught against the world’s eight largest oil exporters.

Oil prices have soared from $20 at the start of 2002 and are now nearing the inflation-adjusted peaks of over $80 hit in 1980, the year after the Iranian revolution. Initially fired by strong demand from the United States and the fast-growing economies of China and India, the rise has accelerated over the past year on worries over supplies. Iraq’s once significant oil industry is in crisis.

Nigerian exports have been slashed by rebel attacks on the world’s eighth biggest exporter and consumers are worried that Iran’s exports could fall victim to its nuclear dispute with the West. The rally has also been aided by big investment funds putting their money into commodities in the hope of higher returns that they get from equities or bonds.

The disruption to Nigeria’s crude output will become more critical as the US driving season begins next month. Nigeria is a major supplier of gasoline-rich crude oil to the United States. The current President of the Oil Producing and Exporting Countries (OPEC) described the upsurge in the international market price of crude oil as a good omen for member countries.

Speaking at a Ministerial Press Briefing, he said the rise in oil price should not be seen as something extra-ordinary but that the situation should be interpreted in the context of the changing global economic trends which presently promotes rising product prices.

Crude oil prices closed at an all time high on fears of declining supply to the international market. The minister said there is a long term constraint in the downstream capacities around the world which is not going to give way in the near future while there is spare capacity in the upstream sector which exists for perception purposes. Technically speaking, according to him, there is enough spare capacity in the upstream.

Gold

Annual global mine production posted a moderate increase of two per cent last year according to leading precious metals consultancy GFMS at the launch of their Gold Survey 2006 at events in London, Johannesburg and Toronto. Concerning the increase, key drivers were reportedly due to markedly stronger annual performances at the world’s two largest mines, and a significant volume of production originating from new mines. On a regional basis, the most sizable contributions to new production were identified as having come from Latin American countries, including Peru (Lagunas Norte) and Mexico (El Sauzal), as well as Telfer in Australia, which was commissioned in November 2004.

The GFMS identified that the largest annual falls occurred in South Africa and Canada. Historical records show that South African gold production hit its lowest level for 82 years, but the consultancy added that the decline represented the sharpest fall for a decade, and was explained by mine closures due to the country’s high domestic cost environment. Cash costs on an annual global basis increased by seven per cent.

The consultancy’s analysis indicated that the hike in costs was attributable to worldwide inflationary pressures including rising wages and higher prices for fuel, cyanide and ultra-large tyres. On a regional basis, North America experienced the greatest annual rise in costs, with Canada and the United States increasing by 19 per cent and 11 per cent respectively; South Africa and Australia’s rises were calculated at a more modest level.

Despite this, the overall ranking remained unchanged, with South Africa and Australia remaining the two highest cost countries. At the Toronto launch, senior analyst Bruce Alway identified that the large volume of new production seen last year, brought about by a stream of projects coming to fruition is anticipated to continue, while start-ups in 2006 will add to the bottom line, 2005’s mines ramping up to full-rate production will be the source of further significant volumes.

Meanwhile, with oil prices not far from fresh record highs around $74 a barrel and tensions between Iran and the West over nuclear issues, gold was likely to remain in demand as a safe haven, analysts said. Fears of further weakness of dollar were also a price-supportive factor. Gold was supported by the recent weakness in the dollar against the euro and high oil prices were increasing fears of inflation prompting investors to buy the metal as a hedge.

Gold batted away from earlier 25-year peaks attained on April 20, triggering a widespread sell-off across the commodities arena.

Aggressive speculative buying prompted by firm oil prices and a weaker dollar had pushed gold up this week by some 8.5 per cent and silver over 14 per cent from peak to trough. Record-high oil prices and news that core US inflation rose at its fastest rate in a year pulled investors into gold as a hedge against inflation, said analysts, many of whom felt momentum for higher metal prices looked strong.

At the New York Mercantile Exchange, Comex gold for June delivery settled up $12.70, or two per cent, at $636 an ounce, after trading from $622.10 to $637.40 the steepest price for futures since December 1980. Gold rose for a sixth-straight session, and was even extending gains as US crude oil jumped to an all-time peak at $72.40 a barrel after a survey showing a surprising drop in US gasoline stocks. Uncertainty about the economy’s outlook, coupled with worries about tensions in the Middle East, including the war in Iraq, has been a key factor behind investors pouring more money into gold and other commodities, analysts said.

Tokyo gold futures rallied more than three per cent to a 20-year high as record high oil prices boosted inflationary fears, prompting investors to buy the gold as a hedge. Spot gold was trading at $635.70/636.50 per ounce after touching a fresh 25-year high of $640.90 in the session.

It was at $633.70/634.50 in late New York trade. Gold and other precious metals rallied in New York as falls in the dollar against the euro and fears of inflation sped up precious metals purchases as an alternative investment.

Record-high oil prices and news that core US inflation rose at its fastest rate in a year pulled investors into gold as a hedge against inflation. Record-high oil prices stoking fears that inflation will bite into the dollar’s buying clout have been the main driver behind gold’s 27 per cent gain this year, though limited supplies and unwillingness among big central banks to part with reserves was also a factor, dealers said.