Oil

Oil prices which had fallen a few days earlier, rebounded on October 23, on the prospect of a cut in output by the Opec cartel.

Brent North Sea crude for December delivery gained $2.55 to $67.07 per barrel. Brent had on October 22 hit a low of $63.96 that was last witnessed in March 2007.

Prices have more than halved since striking record high above $147 per barrel in July, as the market has been shaken by slowing global growth and weaker energy demand.

The Organisation of the Petroleum Exporting Countries (Opec) meets in Vienna on October 24 with the global financial system facing its worst crisis since the Great Depression.

The US Department of Energy revealed on October 22 that American crude oil reserves jumped 3.2 million barrels to 311.4 million barrels in the week ending October 17. That beat market expectations for a smaller increase and highlighted a sharp slowdown in US energy demand.

US gasoline consumption has declined for the past six months and China’s economy has slowed amid the financial crisis that’s spilling into emerging markets. Opec, supplier of more than 40 per cent of the world’s oil, will decide on October 24 to lower output by 1 million barrels a day, according to a Bloomberg survey. The dollar rose to the highest since November 2006 against the euro.

Iran, Opec’s second-largest producer, said it favour a cut of between 2-2.5 million barrels a day. Ministers from Algeria, Libya and Qater have said Opec, which provides 40 per cent of the world’s oil, will need to trim supplies. Saudi Arabia, which dominates Opec proceedings as the group’s largest producer, has yet to comment on its intentions.

Opec forecasts an excess of supply at the end of the year and start of 2009, the group’s Secretary General Abdulla el-Badri told reporters on October 23 in Moscow. Opec will try to balance the market, el-Badri said, adding that it may not be able to achieve this goal on its own.

Opec, the supplier of more than 40 per cent of the world’s oil, plans to cut output for the first time in almost two years as the worst financial crisis since the 1930s sends crude toward $50 a barrel.

Options contracts to sell oil at $50 by December soared 50-fold in the past two weeks on the New York Mercantile Exchange. Goldman Sachs Group Inc. and Mertill Lynch & Co. analysts say crude, which fell more than 50 per cent from a record high in July to a 14-month low last week, may drop another 44 per cent should the world economy slip into a recession.

According to the International Monetary Fund the world’s industrialized economies will expand next year at the slowest pace since 1982. Growth will weaken to 0.5 per cent in 2009, from 1.5 per cent this year, sending US unemployment to its highest level in 16 years, the agency said.

While Opec already agreed to curb production by observing output quotas after a September 10 meeting to lower supplies by 500,000 barrels a day, members routinely pump more than their allocation.

Opec lowered its forecast for demand in 2009 last week, say consumption will be 450,000 barrels a day less than expected at 87.21 million a day. The Paris-based International Energy Agency shaved its 2009 outlook the previous week and said this year’s demand growth of 0.5 per cent will be the weakest since 1993.

US motorists are driving less after gasoline pump prices topped $4 a gallon in July. Vehicle-miles traveled on all US roads that month were 3.7 per cent lower than a year earlier. Prices fell to an average of $3.21 a gallon last week, according to the Department of Energy.

The last time Opec slashed quotas was at a December 2006 meeting in Abuja, Nigeria. That 500,000 barrel-a-day cut took effect in February 2007 and followed an earlier, 1.2 million-barrel reduction in October 2006. Those actions were reversed later in 2007 as prices rallied.

The International Energy Agency on October 24 cut its estimates for global oil demand. “Weak baseline summer demand in the main OECD consuming countries in the face of higher prices is now being perpetuated by weakening economies into outright recession,” the IEA said in its monthly report. But it also noted the current financial storm has an impact on the supply side, because credit shortages are another in a “long line of impediments to industry investment.” The IEA cut its 2008 global demand estimate by 240,000 barrels of oil a day now sees world demand of 86.5 million barrels a day this year, and cut its 2009 estimate by 440,000 barrels a day, to 87.2 million barrels a day.

Copper

On October 14, in the London market, copper prices jumped by 7.5 per cent as a global effort to recapitalize banks triggered a bounce in financial markets and eased growth worries.

Copper for delivery in three months on the London Metal Exchange rose as high as $5500 a tonne, from $5115 at the close a day earlier.

Copper and most other industrial metals were boosted by a European government agreement to provide capital for banks caught short of funds because of frozen money markets and to insure or buy into new debt issues.

The metal, used in construction and power industries, had fallen by 22 per cent a week earlier, which means that copper is only at its highest level since October 8. Copper prices have dropped 40 per cent since a record high of $8,940 a tonne on July 2 on concerns about demand. “With the likelihood of a global recession rising, industrial metals prices will face further downward pressure,” said Merrill Lynch in a research note.

In another development, China’s imports of unwrought copper and semi-finished copper products rose 20 per cent on the month in September as merchants increased spot imports on attractive margins.

LME aluminium rose as high as $2,319 a tones, from $2,250 at the close a day earlier, as financial turmoil delayed a $10.6 billion aluminium joint venture between Rio Tinto and Saudi Arabian Mining Co (Maaden). The metal has fallen almost a third since reaching a record high of $3,380 a tonne on July 10.

Nickel jumped as high as $13,500, up 5.5 per cent, from $12,800 as part of the broader recovery in base metals and amid expectations that prices below or near to marginal costs will force producers to cut output and delay projects.

Prices for the stainless steel raw material have plummeted 75 per cent since a record of $51,800 in May 2007.

Gold

In the London market, gold fell on October 23, to a 13 month low as the strong dollar curbed demand for bullion as an alternative investment. Platinum and palladium also dropped on worries over demand from automakers who use the metals to make catalytic converters.

Spot gold was quoted at $721.15/723.65 an ounce, earlier it had touched a low of $697.45, its weakest since September 07. The metal has so far lost nearly $170 this month.

The reason, according to analysts at the World Gold Council, is that the latest bout of the credit crisis has been deeper and more far reaching. Funds were forced to sell desired assets such as gold to meet margin calls, while weakness in European economies lifted the U.S. dollar, which then pushed dollar-denominated gold prices lower.

Among gold’s 160,000 tonnes of above-ground stocks, only about 12 per cent are used in electronic and other industries, and the bulk of gold stocks are used in jewelery and investment. That is why gold is often immune from economic woes and doesn’t move in tandem with other commodities. But this time, the yellow metal is falling in line with industrial commodities.