October 23, 2006	Monday	Ramazan 29, 1427

Oil

THE Organisation of Petroleum Exporting Countries (Opec), decided to lower output by 1.2 million barrels per day from November 1. All Opec members except Iraq would participate in the cut. Opec, is currently producing 27.5 million barrels, below its quota of 28 million barrels.

In the London market, oil prices fell towards $58 a barrel on October 16, as a Norwegian oilfield restarted after a brief outage and Opec prepared for an emergency meeting to finalise a cut in output. US light crude for November delivery fell to $58.50 a barrel. Brent crude fell to $59.23.

The Energy Information Administration (IEA) has presented their forecast recently. They assume that Opec will cut output by 500,000 barrels a day in the fourth quarter and that colder weather will stimulate demand.

And, as crude prices blipped up on October 12 amid worries about disruptions to Alaska and Norwegian oil supplies, US demand data for the first week of October is above levels expected for the full month. The EIA projects that crude oil inventories will grow in October only by about 135,500 barrels a day during the month, less than half the five-year average build of 300,000 barrels a day and much below the year-ago rise of more than 500,000 barrels a day.

The EIA, the statistical and analytical wing of the Department of Energy, projects that crude input to refineries will drop to 14.8 million barrels a day this month, a steep 5.9 per cent or 931,000 barrels a day, decline from September operating rates that were the highest ever for the month.

Crude oil imports in the first week of October dipped 1.4 per cent, or 149,000 barrels a day, to around 10.4 million barrels a day. But for EIA’s expectation for October inventories to play out – assuming runs plunge as expected – US crude supplies from imports and domestic production would have to drop by around 800,000 barrels a day over the course of the month.

At year-end crude oil stocks are forecast to be 2.3 per cent below their year-ago level, but sill about 13 per cent, or 22 million barrels, above the five-year average.

The US crude oil prices are expected to average around $66.67 a barrel through the first half the year, as crude inventories steadily shrink relative to their five-year average. At the end of March 2007, crude stocks are expected to be 3 per cent below year-earlier levels and will have cut the surplus to their five-year average in half – to 5.4 per cent from 11.1 per cent at the end of March 2006.

Gold

GOLD prices have risen to fresh highs in recent days. In the London market, gold rose to fresh two week highs, as oil stayed above recent lows, but a stronger dollar was preventing prices from regaining the psychological $600 level.

Gold has also gained on tensions over North Korea’s nuclear ambitions. The UN Security Council voted unanimously on October 14 to impose financial and weapons sanctions on North Korea for its claimed nuclear test – a resolution Pyongyang immediately rejected.

James Steel, analyst at HSBC, said the potential influence of other commodities over gold should not be discounted. Base metals continued to rally and grains markets were also buoyant. Gold has recently shown a much stronger correlation than usual with oil.

The outlook for gold prices is favourable in the short terms but may drop in the medium term if physical and investment demand sags, analysts said at the Gold & Precious Metals Investment World 2006 conference in Hong Kong.

Most analysts are in agreement that gold prices have been driven higher in large part by a dramatic increase in investors’ interest in gold, whether as futures, such as within Exchange Traded Funds, or in bullion, as has been the case in India.

Since many expect this flow to continue in the short term, gold may likely retest highs hit earlier in the year within the next six month, they said. Spot gold hit a 26-year high of $732 an ounce on May 12.

Base Metals

THE base metals complex enjoyed a record-breaking run during the London Metal Exchange Week – which is an annual gathering in the British capital of movers and shakers from the industry.

The prices of lead and nickel hit all-time peaks on October 13 owing to falling global stockpiles, production problems and soaring demand from economic powerhouse China, analyst said.

Lead prices reached $1,517 the highest reading since the metal began trading in London in 1953. The price of nickel hit $31,000 per ton, the highest reading since it began trading on the exchange in 1979. And three-month tin prices rose to $10,000 per ton – the best level since 1989 when the metal was re-introduced on the London market.

Analyst at the LME Week said that China would drive demand for base metals, with high prices forecast until at least the second half of 2007. However, expanding mining production would limit gains.

On October 13, three-month copper prices stood at $7,520 per ton on the London Metal Exchange from $7,370 the previous week. Three-month aluminium prices rose to $2,641 per ton from $2,549. Three-month lead prices increased to $1,508 per ton from $1,410. Three month zinc prices climbed to $3,805 per ton from $3,534. Three month tin prices stood at $9,770 per ton, up from $9,100 a week earlier.