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LONDON, Jan 6: Global crude oil prices plunged in the first week of 2007, hit by the prospect of lower US demand, while a strengthening US currency hit other dollar-denominated commodities.
A stronger dollar makes dollar-denominated products more expensive for buyers using other currencies, which reduces demand.
Analysts said that the drop in crude prices had come amid a broader decline in commodities -- including copper, gold and grains -- that had raised speculation that investment funds might be moving their money out of the market.
here's a general mood that commodities are overvalued, we've seen copper fall an awfully long way and we've seen a lot of liquidation in the stronger agricultural markets, said Barclays Capital analyst Kevin Norrish.
Trading was shortened this week owing to New Year celebrations on Monday, while US markets were also shut Tuesday.
The Commodities Research Bureau's index of 17 commodities dropped to 291.57 points on Friday at about 1600 GMT, from 306.45 points a week ago. Earlier Friday, it fell as low as 291.33 points -- last seen in February 2005.
GOLD: Gold prices slid to the lowest point for more than two months in the wake of heavy oil price losses and a strengthening US dollar.
The precious metal hit as high as $645.25 per ounce on Wednesday as the dollar weakened -- but prices then drooped as the US unit staged a strong rebound.
As a result, on Friday gold sank to $602.46 last seen October 31, 2006.
The key underlying dynamics of the market remain largely unchanged with the dollar continuing to provide most of the market direction, noted Barclays Capital analyst Sudakshina Unnikrishnan.
On the London Bullion Market, gold prices fell to $609.50 per ounce at Friday's late fixing, from $632 on the morning fixing of the previous Friday.
SILVER: Silver mirrored gold's downwards trajectory.
Silver was initially steady (earlier Friday) but has since broken lower, said James Moore, an analyst for specialist website TheBullionDesk.com.
The weakening dollar pushed silver to as low as 12.16 on Friday -- reaching the lowest point since October 31, 2006.
On the London Bullion Market, silver prices receded to $12.70 per ounce at Friday's late fixing, from 12.90 dollars the previous week.
PALLADIUM AND PLATINUM: Palladium and platinum crept upwards, bucking the downwards metals trend on high buying interest.
Both metals seem comfortable in their present ranges with platinum building a base above $1,100 while palladium treads water in the $305-30 area, Moore said.
He said that “palladium continues to find support” but added that “the metal will again struggle under its own fundamentals” of supply and demand.On the London Platinum and Palladium Market, platinum firmed to $1,120 per ounce at the morning fixing Friday, from $1,117 the previous week.Palladium edged up to 340 dollars per ounce at the morning fixing on Friday, from $324 one week earlier.
BASE METALS: Copper saw spectacular losses, hitting a nine-month low on the back of rising stockpiles and weaker demand, while most other base metals also fell.
Copper hit an all-time record of $8,800 on May 11, 2006, owing largely to worries over lower global stocks and soaring demand -- especially from China and India. The metal is used primarily in plumbing and the manufacture of electrical cables.
However, copper slid to $5,625 a ton on Thursday, its lowest reading since April 5, 2006. That marked a 36-per cent plunge in value since May.Some traders are taking the view that prices will sink further if the copper market moves into a production surplus in the face of a global slowdown.
The argument the bears are suggesting is that we are heading for slower economic growth this year, said Stephen Briggs, an analyst with Societe Generale.
Societe Generale analysts said the copper market, which has witnessed four years of production deficits, would likely switch into surplus in 2008.
On Friday, three-month copper prices fell to $5,751 per ton on the London Metal Exchange from $6,381 the previous week.
Three-month aluminium prices rose to $2,682.50 per ton from $2,633.
Three-month nickel prices climbed to $33,900 per ton from $33,705.
Three-month lead prices dipped to $1,660 per ton from $1,675.
Three-month zinc prices declined to $4,050 per ton from $4,236.
Three-month tin prices sank to $10,795 per ton from $11,650 a week earlier.
OIL: Oil prices began 2007 with heavy losses, sinking under $55 per barrel for the first time since 2005, amid a milder-than-expected winter in key energy consumer the United States.
In Friday trade, New York's main contract, light sweet crude for delivery in February slid to $54.90 per barrel --the lowest level since June 14, 2005.
In London, Brent North Sea crude for February delivery sank to $54.50 marking the lowest point since November 30, 2005.
At current prices, oil futures have fallen about 9.0 per cent since the start of 2007 trading.
Expectations of a continuing mild US winter have sapped expected demand for heating fuel, Sucden analyst Michael Davies said on Friday.
There was also talk of funds bailing out of the market after suffering heavy losses recently. Crude prices have tumbled since the start of the New Year as unseasonably warm US weather curbs demand for heating oil in the northeast United States, the world's most energy-hungry region.
The slump has extended from the end of last year despite efforts by the Organization of Petroleum Exporting Countries (Opec) to cut production to support prices.
The Department of Energy (DoE) revealed Thursday that US stockpiles of distillates, which include heating fuel, jumped by two million barrels to 135.6 million barrels in the week ending December 29.
That reading was much more than the rise of 850,000 barrels predicted by analysts.
Oil prices have slumped from their record highs above $78 a barrel struck during last year's northern hemisphere summer, when tensions over Iran, Nigeria and wider geopolitical frictions gripped the market.
By Friday in New York, a barrel of crude for delivery in February slumped to $55.50 per barrel from $60.15 the previous week.
In London, a barrel of Brent North Sea crude for delivery in February dropped to 55.10 dollars per barrel, from 60.27 dollars.
RUBBER: Rubber prices receded in subdued trade.
The reason why prices are down really is profit taking, said Rashid Ahmed of Corrie MacColl.
On TOCOM, Tokyo's commodity exchange, natural rubber for June delivery fell to 239.30 yen per kilogram on Friday, from 252 yen a week earlier.
Singapore's RSS 3 April contract declined to 194.50 US cents per kilogram on Friday, from 205.50 US cents a week earlier.
COCOA: Cocoa prices rose to their best level for five and a half months on weather concerns.
New York's cocoa contract leapt by more than 3.0 per cent on Wednesday to as high as 1,696 dollars -- last seen July 2006.
Fears over possible crop damage in Ivory Coast and Ghana, because of the Harmattan seasonal desert wind, continued to support prices, said Sucden's Davies.
The seasonal Harmattan wind is a dry breeze packed with dust which blows across West Africa from the Sahara.
On the LIFFE, London's futures exchange, the price of cocoa for March delivery increased to 916 pounds per ton on Friday, from 888 pounds a week earlier.
On the New York Board of Trade (NYBOT), the March contract gained to 1$,657 per ton on Friday, from 1,641 dollars the previous week.
COFFEE: Coffee prices see-sawed on fluctuating interest from investment funds.
Coffee futures finished lower amid speculative selling and some profit taking after recent highs, said Sucden analyst Michael Davies.
On LIFFE, Robusta quality for March delivery eased to $1,587 per ton on Friday, from 1,590 dollars a week earlier.
On NYBOT, Arabica for March delivery decreased to 120.50 cents per pound on Friday, from 125.65 cents the previous week.
SUGAR: Sugar prices fell, in line with most commodities, and remained under pressure from expectations of a global supply surplus in 2006/07.
Many argue that prices will have to fall further in 2007 to persuade farmers to cut back their recently expanded crops, Davies added.
By Friday on LIFFE, the price of a ton of white sugar for March delivery dropped to 332.50 dollars at about 1615 GMT, compared with $342.80 a week earlier.
On NYBOT, the price of unrefined sugar for March delivery eased to 11.30 US cents per pound, from 11.86 US cents the previous week.
GRAINS AND SOYA: Grains and soya prices fell as growing conditions improved in major producer the United States, and as fund managers rebalanced their investment portfolios.
Allendale analyst Joe Victor cited fund liquidation as the primary reason for lower grain prices.
US trading was cut by two days owing to New Year's Day on Monday and a national day of mourning on Tuesday for former US President Gerald Ford.
On the Chicago Board of Trade, the price of wheat for March delivery stood at US$4.67 per bushel on Friday, from $5.03 the previous week.
Maize for March delivery sank to $3.62 per bushel on Friday, from 3.90 dollars the previous week.
March-dated soyabean meal -- used in animal feed -- slumped to 6.75 dollars on Friday, from 6.97 dollars the previous week.
On the LIFFE, the price of a ton of wheat for March delivery decreased to 96 pounds on Friday, from 97 pounds.
COTTON: Cotton prices retreated in response to falling demand for US exports.
On the NYBOT, the March contract slipped to 54.34 US cents per pound at about 1615 GMT on Friday, from 56.80 US cents the previous week.
The Cotton Outlook Index of physical cotton stood at 60.60 US cents on Thursday, from 59.75 cents a week earlier.
WOOL: The Australian wool markets remain closed for the festive holiday period and are due to reopen on January 8. The Eastern index had stood at 8.39 Australian dollars per kilo on Thursday December 14, 2006.—AFP
