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Oil prices touch new nine-year highs

LONDON: Oil prices soared this week, touching new nine-year high points and breaking the 26-dollars-a-barrel threshold to reclaim heights not seen since the 1991 Gulf War, as a continued producer cutback threatened a supply shortage.

London prices for March delivery surged to 26.76 dollars, while in New York crude prices welled up close to the magical 30-dollars-a-barrel level.

The market is expecting the Organisation of Petroleum Exporting Countries (OPEC) to extend its output cutback beyond a March expiry date, threatening to prolong the tightness of the markets.

A US cold snap and reports of strong global demand helped prices rise further.

Analysts said the strong oil price was dragging several precious and base metals along in its wake.

Gold prices added almost three dollars an ounce over the week to 287.70 primarily due to technical factors, but also because of the strength of oil, which is already threatening to quicken the pace of global inflation.

GOLD: Gold prices ticked upwards this week, sustained by the rising oil price and firmer base metals complex as well as by technical factors, as investors braced for the next Bank of England (BoE) auction due next week.

The spot price on the London market rose to 287.70 dollars per ounce from 284 dollars last week.

"The main aspect is fund short-covering and technical moves, but the strong oil price is a supportive factor as well," said Lawrence Eagles, analyst with the GNI brokerage.

"Higher oil prices don't necessarily mean inflation, but if you get higher oil prices and you get strong economic growth and tight labour markets the rise in inflation will come," he said.

Virtual Gold brokerage analyst Tony Warwick-Ching noted however that inflation was still muted compared with the double-digit levels of the 1970s.

Moreover, he added that the prospect of higher interest rates to counter incipient inflation should bear down on the gold price. Higher interest rates often depress gold prices because they increase the attraction of investing in cash and fixed income instruments, hence raising the opportunity cost of holding gold.

Analysts also said that another British auction of gold due to take place next week was in the back of investors' minds. "People are reluctant to take positions ahead of that, though the auctions do tend to shake out some of the short positions and that helps the price a bit," said Warwick-Ching.

SILVER: Silver prices nudged up this week, in the slipstream of gold.

The spot price on the London Bullion Market rose to 5.13 dollars an ounce from 5.09 dollars.

PLATINUM and PALLADIUM: The prices of the sister metals rose again in a market optimistically anticipating strong global demand, and shaking off a resumption of Russian exports.

Platinum prices rose to 444 dollars an ounce from 423 dollars last week, while palladium was going for 445 dollars from 440 a week earlier.

BASE METALS: Aluminum prices rose to their highest level for almost 2-1/2 years as global supplies of alumina, the oxidised form of the metal which is refined into pure metal, ran short.

The gains made by the light metal pulled other base metals, including copper, nickel and tin, higher.

The base metals complex has also gained from the strength of the gold price, analysts said.

The alumina shortage buoyed aluminium prices in spite of an announcement from Alcoa, the US metals giant, that it planned to increase its production levels by 200,000 tonnes from next month.

Three-month aluminium prices on the London Metal Exchange (LME) rose by 65.5 dollars to 1,725.5 dollars per tonne.

Nickel prices gained 350 dollars to 8,600 dollars per tonne. Copper gained 41 dollars to 1,925 dollars per tonne. Tin surged by 115 dollars to 6,030 dollars per tonne. Zinc lost nine dollars to 1,203 dollars per tonne. Lead lost 10.5 dollars to 480 dollars per tonne.

OIL: Oil prices scaled new peaks this week, bursting through the 26-dollars-per-barrel threshold on continuing strong demand and hopes that producer output cut agreed last year will be extended beyond a March expiry.

The Brent North Sea reference crude rose to 26.76 dollars a barrel for March delivery on the International Petroleum Exchange in London from 25.21 dollars last week for February.

On the New York Mercantile Exchange (NYMEX), light sweet crude for February delivery jumped to 29.66 dollars from 26.69 dollars.

Prices have not been this high since the start of the Gulf War in January 1991, when they last topped 30 dollars a barrel.

The market enthused a noises coming from the Organisation of Petroleum Exporting Countries (OPEC) which has hinted that it may extend a landmark output squeeze beyond March.

The cutbacks, equivalent to 1.7 million barrels of oil per day, helped oil prices more than double last year.

A cold snap in the United States and a report on Thursday from the International Energy Agency highlighting strong demand helped prices further.

"The IEA report effectively put an official stamp on what the market has been shouting about all week Ñ the world needs more crude and an OPEC roll-over (of the production cutback) in March would leave the market too tight for comfort," the GNI brokerage said.

"However do not expect OPEC to come out with calming talk just yet."

RUBBER: Rubber prices advanced this week, albeit in a market still glum about the demise of one of the major natural rubber traders, British outfit Lewis and Peat.

The company's collapse sowed confusion in the market, holding up the release of a large quantity of rubber onto the market, one dealer said.

The London rubber index remained unchanged at 455 pounds per tonne (for February delivery).

Meanwhile, in Kuala Lumpur, the RSSI index rose to 2.46 ringgit per kilo from 2.39 ringgit, while the SMR20 index for material used in tire-manufacturing rose to 2.74 ringgit from 2.66.

COCOA: Cocoa prices fell slightly as the world's leading producer country, Cote d'Ivoire, continued to ship hefty volumes of beans in spite of recent political upheaval.

On the London market, cocoa for May delivery fell to 594 pounds per tonne from 607 pounds last week.

Some 760,169 tonnes of beans have arrived in Ivorien ports for export so far this season, compared with 752,602 tonnes at the same time last year.

Cote d'Ivoire, which supplies about half of the world's exports, expects to reap a record harvest of 1.4 million tonnes the year.

Dealers were still paying close attention to political developments in the country after the military coup in December.

COFFEE: Coffee prices fell to their lowest levels for 6-1/2 years in London amid predictions of a massive supply surplus this year, analysts said.

Robusta contracts on the London market (for March delivery) fell by 44 dollars to 1,120 dollars per tonne. Prices had fallen to 1,087 dollars a tonne midweek which was the lowest level since August 1993.

"With all the coffee coming out of Vietnam, Indonesia, Cote d'Ivoire and Brazil, the worldwide harvest should be extremely large," an analyst at Rudolf Wolff trading house said.

The decline followed earlier rises that had been sparked by previous predictions that the important Brazilian harvest would be smaller than expected. After severe drought in late 1999, flooding in early January sparked expectations of a reduction in the crop size.

But now the rains have stopped and clement weather has returned to Brazilian plantations.

TEA: Tea prices cooled in Mombassa, Kenya. Top-grade BP1 (Broken Pekoe) leaves fell by up to 15 cents. PDust, which is used mainly to make tea bags, lost up to 11 cents.

SUGAR: The sugar market remained calm, with trading dominated by technical factors.

In London, May sugar contracts slipped to 173.8 dollars a tonne from 174.3 dollars. In New York, white sugar for March delivery rose slightly to 5.56 cents a pound from 5.45 cents.

VEGETABLE OILS: US soya prices gained from large-scale purchases from US investment funds this week.

On the Chicago Board of Trade (CBoT), a bushel of soya gained 24 cents to 5.05 dollars (for March delivery).

GRAINS: The US wheat prices advanced slightly as new supply and demand forecasts for the current season showed a short-fall and dry weather persisted in the Midwest producer regions.

In Chicago, wheat prices rose to 265 cents from 263.50 cents a bushel (of 27.2 kg, for March delivery).

Maize prizes were unchanged at 220.75 cents a bushel (of 25.4 kg, for March).

In London, meanwhile, wheat prices fell to 69.65 pounds per tonne from 70.50 pounds.

The market was digesting a downward revision by the International Grains Council for the global grain crop in the 1999-2000 season to 1,460 million tonnes from 1,466. Demand forecasts were meanwhile revised upwards to 1,470 million tonnes.

COTTON: US cotton prices advanced further this week primarily on technical factors.

In New York, May contracts rose to 58.76 cents a pound from 55.95 cents. Cash prices covered by the Cotton Outlook index rose to 47.20 cents a pound from 44.55 cents.

WOOL: Prices in Australia continued to rise, with finer wools in greater demand.

The Eastern index rose by 13 cents to 634 Australian cents per kilo. Demand was also strong in the Bradford auction houses in Britain, but the Wooltops index remained unchanged at 270 pence per kilo.ÑAFP