July 16, 2007	Monday	Jamadi-us-Sani 30, 1428

Oil

On July 11, in the London market, the price of Brent North Sea crude oil breached $77 per barrel, as tight US energy supplies and geopolitical jitters in Nigeria fuelled speculative buying. London’s Brent North Sea crude for August delivery struck $77.07 per barrel a level last seen on August 10, 2006.

Opec has blamed refinery shortages, geopolitical instability and speculation in the futures markets for the rise in energy costs as it ruled out an increase in its production quotas over the short term. Opec twice cut production last year to stem a fall in oil prices after inventories built above historical levels. Since then oil prices have recovered about $20 a barrel, but the cartel has rejected calls by Western countries to restore output levels.

The International Energy Agency has warned in its latest fuel outlook that the world is facing an oil supply crunch within five years that will force up prices to record levels and increase the West’s dependence on oil cartel Opec.

The IEA said that supply was falling faster than expected in mature areas, such as the North Sea or Mexico, while projects in new provinces such as the Russian Far East, faced long delays. Meanwhile consumption is accelerating on strong economic growth in emerging countries.

The problem is exacerbated by the fact that supply from non-members of the Opec will increase at an annual pace of 1 per cent, or less than half the rate of the demand rise. The widening gap between rising consumption and lagging non-Opec supply will force Opec to sharply increase its production in the next five years.

Refineries are already paying record high prices as producing countries have cut the discount at which they sell their oil relative to Brent, according to an analysis by the Financial Times. Most of the discounts had been reduced to levels not seen since 2004 and some even to six-year lows.

Oil demand will grow at an annual rate of 2.2 per cent during the next five years, up from previous estimate of 2 per cent, to reach 95.8 million barrels a day in 2012. China, the Middle East and other emerging countries will lead the increase.

UK oil production is set to suffer a dramatic decline from today’s 1.7 million barrels a day to just 1.0 million bpd in 2012, according to the IEA. The IEA estimates Opec would have to supply about 36.2 million bpd in 2012, up from today’s 31.3 million bpd. That would reduce the oil cartel’s spare capacity to a “minimal level” of 1.6 per cent of global demand, down from 2.9 per cent in 2007.

The IEA’s previous medium-term report called for world demand growth of 2 per cent a year between 2006 and 2011. It expects global demand to reach 95.8 million barrels per day (bpd) from 86.1 million bpd in 2007. The forecast assumes average global GDP growth of 4.5 per cent annually. It said world production of bio-fuels would reach 1.75 million bpd by 2012, more than double 2006 levels, but the fuel will remain marginal as economics hobble further growth.

The report points to a greater reliance on the Opec, source of more than a third of the world’s oil. While foreseeing higher demand, the IEA expects less supply to come from producers outside Opec and the agency also trimmed a forecast for the 12-member group’s unused production capacity

The forecast assumes no net expansion of capacity from Iran, Iraq and Venezuela and that the 500,000 bpd of Nigerian production that has been shut for a year will not reopen during the next five years.

Lead

Lead, used mainly in car batteries, hit a new high at $3015 and traded at $3010, up 2.5 per cent. Prices are now up nearly 80 per cent since the end of last year. This has been supported by strong consumption and the ongoing supply disruption in a key Australian port.

Meanwhile, nickel added on $450 to $33,100 on July 10, stabilizing after a shaky start. It has gained ground after some heavy losses in the past few weeks. The metal rose 2.2 per cent to $33,350 a tonne on July 11.

Analysts and traders in Europe expected buying at current levels and prices are expected to stabilize at around $33,500 to $35,000 over the next couple of weeks.

Copper

In the London market, copper prices have steadied after rising to $8015 a tonne on July 9. Copper held in LME warehouses fell for the third day running, dropping below 100,000 tonnes for the first time in nearly a year. Stocks have more than halved from a high point of over 215,000 tonnes earlier this year but are still triple the critical levels of July 2005 of less than 30,000 tonnes.

World stocks fell and the dollar hit a record low versus the euro on July 11, after signs of fresh woes in the US high-risk mortgage sector rekindled concerns about the potential impact on the wider economy. Similar jitters last month sparked a wave of risk aversion that spilled over into base metals.

Cocoa

Cocoa prices have risen to four year highs in London and New York owing to unrest in major producer Ivory Coast. Meanwhile coffee prices climbed, reaching close to nine year highs in London.

London cocoa prices surged on July 6 to £1,146 a tonne — last seen in late 2003. New York-traded cocoa hit $2,141 a tonne — last reached in February 2003.

By July 6 on the LIFFE, London’s futures exchange, the price of cocoa for September delivery rose to £1,138 a tonne, from £1,115 a week earlier. On the New York Board of Trade (Nybot), the September contract jumped to $2,123 a tonne, from to $2,056 on July 6.

London coffee prices had surged to nine-year highs a fortnight ago amid market worries over lower exports from Vietnam, which is the world’s second-biggest coffee producer after Brazil. On the Nybot, Arabica for September delivery fell to 109.70 US cents a pound, from 112.60 cents.