Commodities: Oil, Gold, Metals Up

The weaker US dollar and concerns about the reliability of oil supplies helped send the price to an all time high of $US127.82 on Friday, before it eased in late trading to close at $US126.29, up 1.7% or $US2.17 a barrel in New York.

Gold, grains and copper were also higher as the greenback eased on less than optimistic news about the economy in America.

New homes starts rose, thanks to a rise in the number of new apartments and units started. But the more important new single family house starts figures tumbled to a new low, while US consumer confidence dropped to a 28 year low.

That sent the US dollar lower.

That saw investors sell the dollar on expectations that there would be another cut in interest rates.

But seeing how the Fed and its senior officers are out ‘jawboning’ investors on the importance of inflation, and are again due to make a number of high profile speeches this week, the expectations about interest rates were a wrong conclusion by investors in the greenback on Friday.

US bond markets seem to think that rates are going to remain on hold, with the next move possibly up at some not too distant (but not too close) date.

In the meantime commodity prices will be reacting to movements in the US dollar, high profile forecasts like the one Friday from Goldman Sachs (which raised its forecast for 2008 oil prices to $US141 a barrel) and on speculation Chinese diesel purchases will strain supplies.

Goldman lifted its oil price estimate for the second half of this year to $US141 a barrel, from $US107, citing fears about supply constraints.

Some analysts reckon China will be forced to increase imports of fuels like diesel and naphtha to generate power after last Monday’s powerful earthquake in Sichuan which has so far killed more than 30,000 people and damaged a number of dams and hydroelectric plants.

Oil prices edged up 0.3% last week, a big slowdown from the 8% rise the week before.

The market has to full digest the impact of the news that Saudi Arabia will boost production by 300,000 barrels a day from next month. It’s not known if this will add to total output or help cover the shortfalls from Mexico, Venezuela, Nigeria and Russia where output is falling in all four countries because of old fields and underinvestment.

Goldman Sachs forecast that the main US marker crude, West Texas Intermediate will rise to $US135.30 in the third quarter and $US145.60 in the fourth quarter of this year, and the price will then rise further in 2009, averaging $US148 a barrel.

Also adding to the mix for oil was confirmation that the US Energy Department won’t increase deliveries of oil to the US Strategic Petroleum Reserve.

This was after the US Congress, in an effort to respond to record energy prices, voted to suspend deliveries through to the end of the year if oil stays above $US75 a barrel.

Regular petrol prices averaged a record $US3.787 a gallon on Friday.

 

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Meanwhile gold had its best rise in 10 weeks on the oil price move and the weakness in the US dollar.

But seeing these factors have been around for most of the past 10 weeks, it’s hard to work out why they had the impact they did on trading sentiment on Friday: except to say that the move downwards in the US dollar was probably enough to convince nervy punters that the chances of a rebound against the euro is pretty remote for a few days.

The US dollar’s rise against the euro is now less than 3% since the all time low last month: that’s down from 8% 10 days or so ago.