The 27% slide in oil prices so far to around $US106 a barrel has had no impact on demand or on market sentiment: the fear of global slowdown is now too real for investors (and probably an irrational fear at that)
Crude oil fell to a five-month low as the dollar climbed and U.S. unemployment rose more than expected, signaling a slowdown in demand.
Commodities are the culprits, or rather, weak commodity prices, are the culprits for the weakness in many markets: the UK, Australia and in parts of Asia.
But they are not the complete answer: the credit crunch is still assisting, along with slumping domestic economic activity (brought on by the global slowdown in most cases and high oil prices earlier in the year). In some countries, such as Russia, Thailand, Ukraine and Malaysia, political instability is not helping either. Oil fell 8% last week, the most since the current retreat started in July, as the US dollar hit the highest level this year against the euro.
US unemployment rising to 6.1% might be signalling a slowing US economy, but a 3.5% drop in US fuel use over the four weeks to last week (at a time when the cost of oil and petrol was falling) says it all about the immediate outlook for the world's biggest economy. The presence of a succession of storms is probably keeping oil prices above $US100: there are at least three more storms to come over the next 10 days to two weeks according to weather forecasts.
Nymex October crude fell $US1.66, or 1.5% Friday to settle at $US106.23 a barrel, the lowest close since April 4. Despite the 27% fall since mid-July, oil prices in US dollars are still 41% up on a year ago. OPEC meets this week in Vienna on September 9 (Tuesday night). Venezuela and Iran have made calls to trim supply because prices have dropped percent from the record $US147.27 reached on July 11.
The big question is what Saudi Arabia does. It unilaterally raised output by 500,000 barrels a day during June and July to curb the rise in oil prices. Reports from Asian refineries say that it is already trimming liftings for later in the year: it could formally announce that this week. Copper has a rough week, so its no wonder BHP and Rio were weaker, along with every other copper producer (Oz Minerals for example). The metal had its biggest weekly drop since January 2007, thanks to rising stockpiles and slowing global growth.
The continuing exit by commodity investors also helped send prices lower. London Metal Exchange stocks rose 10% on Friday to 200,875 tonnes, the highest since early January and the largest one-day jump since August 2005. Comex December copper sank a nasty 16.75 US cents, or 5.1% Friday to $US3.0985 a pound, after earlier touching $US3.0745, the lowest level for a most-active contract since January 23. Copper dropped 8.5% last week and is down 27% since hitting an all time high in May. But it is still up 3.4% since the start of 2008.
On the LME, three month copper fell $US326, or 4.5%, to $US6,900 a tonne or $US3.13 a pound, so still some readjusting to do tonight. Gold and silver plunged as investors ignored their tarnished claims as stores of value in times of high inflation (like now) or volatility. The US dollar's gains continued so investors in sterling or euros are seeing gold price falls not as dramatic (as are those in Australia) in local currency terms.
Gold has fallen 22% since hitting the all time high of $US1,033.90 an ounce on March 17. Comex December gold futures fell 40 US cents to $US802.80 an ounce on Friday. It was off 3.9% last week. Earlier it fallen well under $US800 an ounce in Asian and European trading.
The euro traded as low as $US1.4196 Friday, down from a record $US1.6038 reached on July 15. Bloomberg says gold may fall to $US750 by November, should the euro sink below $US1.41, according to analysts at Deutsche Bank AG in a report out Friday. Silver dropped as much as 5.9% on Friday and closed down 4.75% or 61.5 cents at $12.725 cents an ounce.
And in Chicago, wheat fell Friday to a three months low. The United States Department of Agriculture's latest monthly report in world grain trends is out this week and could reveal that more wheat will be grown this year than previously thought because of improving weather conditions.
December wheat futures fell 25.5 cents, or 3.3% Friday to $US7.515 a bushel on the Chicago Board of Trade. That took the week's losses to 6.2% after a 10% drop the previous week. Friday's close was the lowest since the end of May.
