25.08.2008 11:29

COMMODITIES: weekly review

Oil prices rallied above the $120 a barrel level last week and gold staged an impressive rebound, dispelling some of the negative sentiment towards commodities which has accumulated this summer. On Thursday, US crude prices surged to a high of $122.04, amid rising geopolitical tensions following Russia’s decision to suspend military co-operation activities with Nato. Oil traders remain concerned about the possibility of further disruptions to Azeri crude supplies in spite of the end of the war in Georgia.

Crude oil fell more than $6 a barrel, dropping the most in percentage terms since December 2004, as the U.S. dollar strengthened and BP Plc restored shipments on a Caspian Sea pipeline through Turkey. Energy futures fell as the rising dollar eased demand for commodities as an inflation hedge. The Baku-Tbilisi-Ceyhan pipeline, which moves oil from Azerbaijan through Georgia to Turkey's Mediterranean coast, resumed normal flows today after a fire shut it earlier this month, a Turkish official said.

BP, Europe's second-largest oil company, StatoilHydro ASA and partners cut output at Caspian oil fields following the closure of the 1,768-kilometer (1,100-mile) link on Aug. 5. The pipeline is used to carry oil from Azerbaijan through Georgia to Turkey, where it's loaded onto tankers for U.S. and European markets. BP said loadings are scheduled to begin next week. The shutdown of the BTC pipeline was followed three days later by Russia's invasion of Georgia, which further disrupted Caspian fuel shipments.

Oil prices have also fallen on reduced demand in the U.S., the country responsible for almost a quarter of global oil use. The credit crisis has led to a higher U.S. jobless rate and slower economic growth this year. The Organization of Petroleum Exporting Countries will probably increase oil supply in August by 400,000 barrels a day, or 1.2 percent, as Iran releases crude oil held in storage, according to preliminary estimates from PetroLogistics Ltd. OPEC will next meet to review production targets on Sept. 9 in Vienna. Crude oil rose to $114.59 a barrel on the week, while Brent crude oil rose to $113.92 a barrel.

Gold was up 4.7% last week (to $829.50 an ounce) after sliding 18 percent in the previous five weeks. Gold's gain this week is the biggest since Nov. 23, 2007. Silver futures also rose to $13.555 an ounce. Before Friday, silver fell 7.2% this year while gold gained 0.1%.

Base metals traders are turning their thoughts to Chinese demand post the Olympics and asking whether pent up activity could have a significant impact on stocks held in LME warehouses. Zinc jumped 9% to $1,825 a tonne last week, helped by news of production cuts that forced hedge funds to buy back short positions. Nickel leapt 11.5% at $20,850 a tonne, also helped by short closing.