February 26, 2007	Monday	Safar 8, 1428

Oil

OIL prices have fallen in recent days, owing to expectations of warmer temperatures in the United States which should reduce demand for heating fuel. “Given that the end of the heating season is fast approaching and Saudi resistance to more robust (output) cuts, current inventory levels have the potential to force prices lower in the near-term,” analysts at BMO Nesbitt Burns said.

Prices began last week by slumping more than two dollars on February 12 trade, in response to Saudi Arabian comments that appeared to pour cold water on further output cuts by the Opec group.

On the following day, crude futures staged a strong rebound after the International Energy Agency (IEA) raised its estimate for world oil demand this year, closing up more than a dollar in New York.

Reserves of distillates, including heating fuel, fell by three million barrels to 133.3 million in the week ending February 9, according to the Department of Energy (DoE).

Analysts had expected a larger drop of four million barrels amid freezing weather in the United States, the world’s biggest energy consumer.

The oil producing cartel said it was maintaining its estimate for the growth of oil demand in 2007 at 1.5 per cent, in line with its previous monthly report.

In the London market, on February 20, the price of Brent North Sea crude for April delivery fell 82 cents to $57.33 per barrel in electronic deals, after earlier falling beneath $57.

Temperatures: New York’s main oil futures contract, light sweet crude for delivery in March, dived $1.64 to $57.75 per barrel in floor trading. Temperatures in March are expected to remain warmer than normal in the US.

The Energy Information Administration, the statistical arm of the US department of energy, said crude inventories dropped 600,000 barrels in the week to February 9 as imports remained relatively flat.

The EIA said petrol stockpiles fell by two million last week, and distillate fuel inventories, which include heating oil and diesel, declined by three million barrels, but both remained above the upper end of the average range for this time of year. Analysts had forecast distillate inventories falling by between 4-5 million barrels. The EIA said total commercial petroleum inventories fell by 11.3 million barrels last week.

Demand for Opec oil in 2007 will average 30.25 million barrels per day, up from the 30.09 million bpd previous forecast, the 12-member club said in its Monthly Oil Market Report for February.

Opec also said it may cut its forecast for growth in world demand this year from 1.2 million bpd, or 1.5 per cent, should there be a return of the exceptionally mild temperatures in the United States that curbed oil use earlier this year.

The Organization of the Petroleum Exporting Countries said the output curbs totalling 1.7 million bpd, decided at meetings in Qatar and Nigeria last year, were succeeding in balancing supply and demand.

The 10 Opec members bound by the curbs pumped 26.76 million bpd in January, down 112,000 bpd from December, but still above a 26.3 million bpd target, Opec said in the report, citing estimates from secondary sources.

Iraq and Angola, an Opec member since last month, are exempt from the cutbacks. Opec expects supply from non-member countries to average 50.7 million bpd this year, up 1.2 million bpd from 2006 and a reduction of 170,000 bpd from the previous estimate.

Non-Opec countries such as Mexico, the United States and Kazakhstan will pump less crude than previously though.

Falling output at ageing fields and setbacks such as 2005’s hurricanes in the Gulf of Mexico have slowed growth in non-Opec output in recent years, boosting the need for Opec crude.

Gold

GOLD prices have risen and struck a peak of $671.94 an ounce on February 14, which was the highest level since mid-July 2006. Dealers recently said its uptrend is intact, with the next target of $700 an ounce.

Gold has risen as the dollar hit a six week low against the euro after US Federal Reserve Chairman Ben Bernanke said inflation pressures were starting to ease. Gold often is used as a hedge against fluctuations in the dollar, so moves inversely to it.

Long-term sentiment for the precious metal was bullish, but in the near future gold may fall before it rises again, analysts said. “We remain positive on gold and forecast the metal will average $700/oz this year, based on a combination of gold market fundamentals — primarily due to a much improved buying from the physical market and the material chance of lower net central bank sales — and expectations of a weaker USD,” John Reade, head of metals strategy at UBS, said in market report.

Meanwhile, silver prices climbed above $14.0 per ounce for the first time this year, after benefiting from the rise of its sister metal gold. By reaching $14.104 per ounce, silver repeated the level struck in December 2006. Silver gained also from strong performances among base metals, since as well as being used to make jewellery, silver is utilized by industry.

Tin/Copper

TIN prices hit a new high on the London Metal Exchange on February 16, marking the highest price since 1989 when the metal was reintroduced on the London market.

The price of tin is surging owing to a drop in output from Indonesia, which is the world’s second biggest producer of the base metal. Indonesian company Koba Tin, the country’s second biggest tin miner, has suspended deliveries of the metal amid an ongoing probe into unauthorized tin mining.

Copper stocks in LME warehouses stand at around 215,350 tonnes or over four days of world consumption, up 450 on February 15.

The inventory figures the market would be watching are deliveries in or out of Asia as a signal of Chinese imports in the pre-New Year holiday period, a Deutsche Bank report said.

We forecast average copper prices of $5,000 in 2007 and $3,800 in 2008,” analyst Andrew Keen at Bernstein Research said in a report

The value of Chile’s copper exports soared 41.5 per cent in January from the previous month despite copper prices falling by around 9 per cent since the beginning of the year.

On February 16, three month copper prices jumped to $5,820 per tonne on the London Metal Exchange from $5,450 the previous week.