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Oil prices fell in the week ended April 5-6, as coalition forces moved closer towards Baghdad. They were also pulled lower by the resumption of oil production in Nigeria. Ethnic unrest had halted 40 per cent of the country’s output of 2.2 million barrels per day.
Chevron Texaco and Royal Dutch Shell, the two major oil producers in Nigeria, announced plans recently to resume production. The move by Nigeria, together with Venezuela returning to near normal output levels after a two-month strike, leaves Iraq as the main focus of supply concerns.
Benchmark Brent crude and Nymex light sweet crude prices dropped on April 4 more than $1 a barrel at one stage, but by late afternoon in Europe May Brent was 77 cents lower at $24.73 a barrel, marking a 6 per cent decline on the week. May Nymex crude was 72 cents weaker at $28.25, a near 7 per cent slide over the week.
The US stocks data released recently show a large jump. The US Department of Energy said crude oil in storage was bolstered by record high imports of 10.4 million barrels per day (bpd), tempering fears of shortages from Nigeria and Iraq. Iraq, the world’s seventh largest exporter, stopped selling oil in mid-March ahead of the US-led attack. Nigeria has seen its output slashed by 40 per cent by unrest in the delta region ahead of elections later in April. The inventory data still left tanks at a deficit to year-ago levels, but dealers said the danger of shortages had receded.
Most of the extra supply has come from the United States’ key gulf ally Saudi Arabia, which is home to the world’s biggest oil reserves and output capacity. Saudi Arabia is now pumping its highest level in 21 years at 9.5 million bpd, 12 per cent of world supply, according to a Reuters monthly survey of Opec output released on April 2.
The Organization of the Petroleum Exporting Countries as a whole is pumping eight per cent more than its self-imposed ceiling to cool a price rally which took US crude close to $40 in February, the survey showed. But the shortfalls from Iraq and Nigeria have yet to be felt at the level of imports in the United States because oil takes weeks to arrive in tankers. “It is by no means clear that imports can be maintained once the cushion of extra oil in the supply chain over the next few weeks begins to abate,” said Paul Horsnell of investment bank JP Morgan.
On April 3, gold prices fell to their lowest in nearly four months in Europe, as US troops moved towards Baghdad. Gold prices lost some $15 as the dollar and equities rose on the US led advance, which raised the prospect of an early end to the conflict. Gold was fixed at $323.70 an ounce in London, the lowest since December 10, 2002.
Traders said gold had been hit by selling as investors pulled money out of traditional safe havens and moved back into currency and stock markets. But the drop below $325, which was the lower end of gold’s trading band over the past four months, stoked physical interest and producer buy-backs.
HSBC analyst Merlin Marr Johnson said in his daily report that an estimated 15,000 ounces was bought from HSBC offices in the Middle East and India on April 2, as buyers sought to profit from sharply lower prices. Although gold, like base metals such as aluminium, was seeing buying interest as prices fell, both markets were being overwhelmed by selling.
Recently platinum prices fell to 11 week low of $617.00/622.00 an ounce. These have been on a downward path ever since peaking at a 23 year high of $707 on March 10. Its sister metal, palladium, sunk to fresh near six year lows of $173 an ounce.
Palladium has now fallen more than 80 per cent from its peak of $1085 in early 2001, when it became the world’s most expensive metal. Both platinum and palladium prices have been affected by lower industrial demand, particularly from carmakers, as manufacturing activity in North America and Europe slows. Poor economic news has also hit base metal prices.
Metals analysts argue that should the US led war in Iraq come to an end without catastrophe and without too much expense, the global equity markets could stage a relief rally that could spur more buoyant consumer and corporate expenditure. This could be good news for the metals used to build cars, trucks, appliances, homes and other items. If stock market rally materializes, copper stands to gain, owing to its demand in Far East markets, particularly China.
Copper prices are up 15 per cent from the lows in 2002, because of rising demand from China and modest growth outside of Asia have fuelled improved prices and modest inventory reduction.
The JP Morgan predicts that copper prices will average 76 cents a pound in 2003, 84 cents in 2004 and 88 cents in 2005. “Copper still has the most attractive fundamentals of all the metals, due to admirable producer supply discipline, rising net imports from China, and strong leverage to an economic recovery.” Copper is likely to gain ground in any economic recovery.
