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Oil
The price of oil on November 1, rocketed to a record $96.24 per barrel on worries over tight supplies. Crude oil prices are moving towards $100 a barrel. Crude futures have risen by about $10 in only a month and by $30 or 50 per cent in a year. Supply tightness and the developments surrounding Iran remain the focus of attention. The US has escalated tensions over Iran’s nuclear drive and imposed same sanctions. Oil prices were also being supported by Opec’s hesitance to increase production, tight energy supplies in US and falling US dollar.
The US Energy Information Administration (EIA) said on October 24 that stockpiles of crude had plunged by 5.3 million barrels in the week ending October 19. The market had expected a gain of 960,000 barrels.
Inventories of US distillates, which include diesel and heating fuel, sank by 1.8 million barrels last week. That confounded market expectations for a rise of 275,000 barrels.
Heating fuel stocks are a key market focus because demand usually surges during the northern hemisphere winter. Compared with a year ago, distillates stocks are 7.6 per cent lower and crude reserves are down 5.9 per cent.
Oil prices have soared by more than a third since mid-August as a stand-off between Turkey and Kurdish rebels, dollar weakness, easing interest rates and winter supply fears have attracted a fresh wave of investment capital.
Prices rose on October 29 after Mexico’s state-owned oil company Pemex said it was shutting about 600,000 barrels per day (bpd) of oil output due to bad weather in the Gulf of Mexico.
The dollar hit another record low against a basket of currencies on expectations the Federal Reserve will trim interest rates this week and possibly again this year.
Central banks have poured billions of dollars into financial markets to ease a liquidity crisis. Much of that money has found its way into energy, commodities and emerging markets.
Gains in oil accelerated amid unusually heavy trade of 16,000 lots on the U.S. front-month contract, with some traders pointing to short-covering by options players or technical stop levels around the $93 a barrel mark. Opec has shrugged off calls from importer nations to raise output.
Gold
Gold prices have surged to as high as $782.0 per ounce, which was last seen in January 1980. Dollar denominated commodities benefit from a weak US unit because it makes them cheaper for buyers using strong currencies.
Meanwhile, soaring oil prices spark inflationary concerns, while gold is regarded as a haven in troubled times.
Gold was gradually advancing towards $800 an ounce, while the dollar struggled to find a solid base. The deteriorating economic picture in the US, is manifesting itself in a weaker dollar and that’s helping gold.
Spot gold hit a high of $780.60 an ounce, the highest since January 1980 when it rose to an all-time high of $850.
The metal has surged 23 per cent this year. The dollar fell to fresh record lows against the euro and a basket of currencies, while oil shot up to record highs on heightened tension between the United States and Iran and on worries over energy supply shortages.
A weaker dollar makes gold cheaper for other currency holders and lifts demand. The metal also attracts investors from the currency market in the event of a cut in interest rates.
Rising crude oil prices on fears of interruptions of supply from the Middle East are another supportive factor for gold. Political tension in the Middle East might lead to higher oil prices and further increase gold’s appeal as a safe haven.
Platinum tracked gold, with supply worries supporting the metal, used to clean vehicle exhaust fumes and make jewellery. Spot platinum rose as high as $1,454/1,458 an ounce, matching preceding week’s record high of $1,454, against $1,443/1,448 late in New York.
A mine shaft remained shut at South Africa’s Impala Platinum, the world’s second biggest producer of platinum, after a fatal accident earlier in the week. Silver climbed to an eight month high of $14.18 an ounce before easing to $14.13/14.18, against $13.86/13.91 in the US market.
Copper
Copper prices which had steadied on October 23, rose on the London Metal Exchange on October 26, supported by data showing strong Chinese demand in the face of global economic uncertainty.
Copper for delivery in three months, often considered a benchmark of the metals market and the real economy in general, was untraded in the official open outcry session, but quoted at $7,825/7,830 per tonne, up $60 from October 25 close and more than $1,000 higher than at the start of the year.
Metals have tracked equity markets recently, but market-specific data from China lifted prices on October 26. China’s copper imports in September were up 17 per cent on the previous month, while warehouse stocks monitored by the Shanghai Futures Exchange fell 11 per cent. Ongoing strong demand for copper in China could offset fears that a slowdown in the US economy may lead to lower use of metals.
In contrast to the Shanghai data, copper stocks in warehouses monitored by the LME rose by 2,725 tonnes to 154,175 on October 26 taking the increase on October to almost 18 per cent. Copper has fallen around $300 since the start of October, though metals are still among the best-performing assets this year. Copper is up around 23 per cent since the start of the year.
Lead/Zinc
Lead was boosted after the International Lead and Zinc Study Group said the global lead market deficit in the January to August period 84,000 tonnes compared with 27,000 in January to July.
The metal used to make batteries has been a favourite with speculators betting on tight supplies to push up prices, which hit a record high of $3,890 on October 11.
But the realization that stocks in LME warehouses are up nearly 80 per cent to 37,375 tonnes — two days global consumption — since late September has taken some of the froth of the market.
Zinc, used as an anti-corrosive in the construction and auto industries, was up at $2,912/2,922 from $2,880.
But analysts say rising supplies, reinforced by news that US-based Apex Silver Mines has made the first shipment of zinc concentrate from a project in Bolivia, will weigh on the metal over coming months.
Zinc, although well off its lows, doesn’t look particularly healthy with sentiment weighed down by expectations of increased supply.
In industry news, BHP Billiton, the world’s largest diversified miner said it was running its copper, iron ore and coal mines flat out to keep up with demand.
