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Oil
Oil prices have risen to $84 a barrel as companies shut Gulf of Mexico output on forecasts of a tropical depression churning through the region which could become a storm. In the New York market on September 20, the US crude touched an all time high of $84.10 before settling at $83.32 a barrel.
Oil has traded above $80 for the past week in part due to concerns about US supplies after government data showed crude stocks in the top consumer fell for the fourth straight week.
The US Department of Energy said that US crude inventories fell by a sharper than expected 7.1 million barrels in the week to September 7.
The drop was almost three times heavier than market expectations. Prices are expected to remain under pressure in the near term because September is the peak hurricane month in the US, the world’s biggest energy consumer.
Winter in the northern hemisphere is also nearing which means demand for heating fuel would peak.
The record-breaking week for the oil market came despite an announcement by the International Energy Agency that it was lowering its predictions of global crude demand for this year and 2008 because of ongoing turbulence across financial markets.
The IEA, which acts as energy policy adviser to industrialized countries, reduced its demand forecast to 85.9 million barrels per day in 2007 and 88 million bpd in 2008, from its prediction last month of 86 and 88.2 million bpd respectively.
Expectations that the US Federal Reserve will cut interest rates when it meets later this week also supported oil and other commodities by raising the likelihood the economy will weather a credit crisis.
Hurricane and other supply risks, shrinking US fuel inventories, and fund flows into energy from poorly performing equity markets have fuelled a rally of more 30 per cent in oil prices so far this year.
The Organisation of the Petroleum Exporting Countries (Opec) agreed last week to boost output by 500,000 barrels per day (bpd) from November, but the move has failed to soothe consumer concerns.
Though crude prices have quadrupled since 2002, when adjusted for inflation the price is below the $90 peaks of the Iranian Revolution in 1979.
Goldman Sachs forecast U.S. oil prices would surge to $85 a barrel by the end of the year, up $13 from its previous forecast, and said crude could climb as high as $90 due to tight supplies.
Opec may consider of holding consultations about a further output increase if the price of oil stays above $80 a barrel for more than 15-20 days. It was too early to say if Opec needed to boost supply further.
Investors were betting that consuming countries would swallow Opec’s increased supply and still need more oil during peak winter demand. The high price would not last long as concerns about supply would abate once the world’s number one consumer, the United States, built stocks of heating fuel ready for winter, the source said.
Gold
Gold prices have risen in recent days.
The metal closed on a 26 year high of $730 an ounce hit in May last year and is roughly $130 below its all time high of $850, fixed in London on January 21, 1980.
Gold was energised by record high US crude prices, which increase the risk of inflation. The higher cost of goods raises the attractiveness of the precious metal as a defence against the erosion of the value of money. Metal was also supported by the buoyant Asian demand for jewellery.
“As gold prices continue to exhibit a strong inverse relationship to the US dollar, increased risks towards a weaker dollar on increasing concerns over US growth and expectations of a persistent moderation in foreign demand for US credit products present further upside risk to gold prices,” Goldman Sachs said in a report.
Gold has rebounded about 10 per cent from a seven-week low reached in mid-August. It hit low of $641.10, when investors sold gold to raise cash to cover margin calls on losses triggered by a meltdown in the US sub-prime mortgage market.
The Bank of Spain, the largest seller of gold this year under the central banks’ gold agreement, plans no more significant sales of the precious metal in a move that is likely to fuel the recent surge in prices.
People familiar with the pact said Spain’s central bank had already achieved the bulk of its planned bullion disposals.
Analysts said the end of Spanish sales could reduce next year’s central bank gold sales and improve sentiment in the bullion market just as the gold price is approaching a 26-year high.
The metal is within a whisker of the 26-year high of $730 an ounce it hit in May 2006. However, it is still about $130 below its all-time high of $850 reached in early 1980.
Large gold sales by the Bank of Spain, and lately by the Swiss National Bank, have undermined gold sentiment. But the weakness of the US dollar and strong physical demand from India, the Middle East and China was pushing up prices.
Spain has been the largest seller of gold under the current year of the central bank pact which runs to the end of this month, according to data from the World Gold Council.
Spain sold about 149 tonnes, or 37 per cent of the total 399 tonnes sold by central banks in industrialised countries. The French central bank was the second largest seller with 99.2 tonnes.
Cocoa/Coffee
Cocoa prices edged up amid concerns that crop disease could hamper output in leading producer Ivory Coast.
On September 14, on the LIFFE, London’s futures exchange, the price of cocoa for December delivery rose to £967 a tonne, from £963 a week earlier.
On the New York Board of Trade the December contract rose to $1840 a tonne, from $1835 the previous week.
Coffee prices rose on buoyant global demand. By September 14 on the LIFFE, Robusta quality for November delivery surged to $1,940 a tonne, from $1,828 one week earlier. On the NYBOT, Arabica for December delivery soared to 119.90 US cents a pound, from 116.65 cents.
