Oil
OIL prices rose to nearly $62 a barrel following a surprise draw in US crude stocks and a deep drop in gasoline inventories. US crude was up 14 cents a barrel at $61.96. Prices stand near a two month high of $62.49 touched a week ago before a bout of equity induced weakness.
London Brent crude was up 13 cents at $62.63. US crude stocks plunged 4.8 million barrels last week, against analysts forecast for a rise, after fog along the key Gulf Coast refining and transit hub disrupted imports.
A 3.8 million-barrel fall in gasoline stocks was also much deeper than analysts had expected, stoking concerns about summer supply amid a series of refinery glitches, while distillates stocks declined 1.3 million barrels, data showed. Heating fuel stocks may fall further as a cold snap hits the US Northeast just two weeks before the end of winter.
Oil has recouped its sharp losses earlier when it finally buckled under the weight of falling financial and commodity markets, and is about half a dollar higher than on February 27, just before the global flight from risk kicked off.
Earlier prices had sustained losses after the equities sell off but recovered as traders took the view that the Chinese economy and it voracious demand for oil was strong enough to withstand the stock market dive.
Several Opec officials have also said in recent weeks that oil supply and demand are balanced, largely due to the group’s recent output cuts. Against the expectations of many skeptical traders and analysts, Opec has cut its output since the latter half of last year, led by de facto leader Saudi Arabia, though by no means close to its stated goals.
Opec, which meets around 40 per cent of the world’s oil consumption of 85 million barrels a day, agreed on paper to cut output from its 10 members subject to production quotas by more than 6 per cent, or 1.7 million b/d, in two tranches starting November 1, 2006. Opec officials have indicated that if oil price remain close to $60/bbl there will be no need for the group to cut output again at the March meeting
Nigeria is the fifth largest supplier of oil to the US, with an Opec quota of 2.1 million barrels a day. Opec’s 11 members produce about 30 million barrels of oil a day, compared to a total world production of about 85 million. It would be recalled that the organization, had at its December 14 meeting in Abuja, slashed output by 500,000 barrels that was aside to the 1.2 million agreed at its October meeting in Qatar.
Oil prices have been volatile since a nearly 9 per cent drop on China’s main stocks market on February 27, the steepest fall for a decade, which triggered big falls in U.S. and European markets.
The EIA said global oil demand growth had been revised down by 400,000 barrels a day for the second quarter and third quarter. The lower forecast was offset by a downward revision to oil supplies from countries outside the Organisation of the Petroleum Exporting Countries. It said non-Opec supply growth for 2007 would fall by 300,000 b/d to 700,000 b/d.
The Organisation of the Petroleum Exporting Countries, source of more than a third of the world’s oil, pledged to reduce supply by 500,000 bpd from February 1, in addition to a 1.2 million bpd cut that took effect in November.
Analysts forecast prices to average $61.29 this year, down from 2006’s average of $66.24 a barrel. Demand from China, the world’s second largest energy consumer, was forecast to rise 430,000 bpd this year to 7.57 million bpd. That is up from 400,000 bpd last year, according to IEA estimates.
Gold
IN the London market, gold fell to its lowest in six weeks as the carnage on equity markets infected sentiment for the previous metal and investors sold to cover their losses, analysts said.
Spot gold touched $633.00, the lowest since January 23, compared with $643.10/643.80 late in New York on March 2.
Analysts said the correlation — the strength of the relationship — between gold and equities has become more positive in recent years because of the greater involvement of investors in commodity markets.
So, when risk-averse investors sell their holdings in times of turbulence, gold is included, despite its traditional role as a haven against equity market turmoil, economic and political uncertainty and inflation.
“The correlation between markets is rising and there has been a knock-on impact on gold from equity markets,” said Tariq Salaria, analyst, at Standard Chartered.
Meanwhile, silver, palladium and platinum prices also fell silver prices also finished on a weak note and remain vulnerable to further losses, according to UBS analyst John Reade.
“Stock market turmoil prompted further bouts of speculative and fund liquidation in previous metals,” added James Moore, an analyst for specialist website TheBullionDest.com. Prior to the stocks sell-off, silver had hit $14.74 — the highest point since May 12, 2006.
The prices of platinum and palladium fell in line with losses by gold and silver. On the London Platinum and Palladium market, platinum dropped to $1, 203 per ounce at the late fixing March 2, from $1, 234 the previous week. Palladium stood at $347 per ounce, down from $353 one week earlier.
Cocoa/Coffee
COCOA prices rose and hit a seven month peak in London and a two year record in New York as speculators ploughed into the market on fears of a weak harvest in leading producer Ivory Coast. By March 2, on the LIFFE, London’s futures exchange, the price of cocoa for May delivery rose to £988 per tonne, from £971 a week earlier.
On New York Board of trade (NYBOT), the May contract increased to $1,797 per tonne on March 2, from $1,779 the previous week. Coffee prices retreated last week, with trading in London hit by a production surplus in major producer Vietnam.
By March 2 on the LIFFE, Robusta quality for May delivery tumbled to $1,500 per tonne, from $1,575 a week earlier. On the NTBOT, Arabica for may delivery decreased to 115.65 US cents per pound on march 2, from 119.90 cents the previous week.