Crude oil prices hit multi-year lows this week after OPEC held output levels despite global oversupply, in a move perceived by some analysts as an attack on booming US shale energy.
Heavy falls in the oil market also dragged down many other commodities, despite holiday-shortened trade due to Thanksgiving on Thursday in the US.
“With crude oil plunging, commodities generally have come under pressure with general portfolio liquidation being cited as a factor behind the move,” Standard Bank analyst Leon Westgate said.
“Other knock-on effects in terms of energy costs and lower production costs have also emerged,” he said.
OIL: OPEC opted on Thursday to keep its collective production ceiling at 30 million barrels per day, where it has stood for three years.
The no-change decision sent London Brent oil collapsing on Friday, sinking below US$70 for the first time in four-and-a-half years to US$69.78 a barrel.
Brent later settled at US$70.15 a barrel, down US$2.43 from Thursday’s close.
In New York, Texas crude closed at US$66.15 a barrel, plunging US$7.54 to its lowest close since September 2009.
The oil market has shed more than a third of its value since mid-June, depressed by plentiful supplies, a stronger US dollar and demand fears in a faltering global economy.
OPEC kingpin Saudi Arabia and other Gulf monarchies were opposed to any production cuts, seeking instead to counter the rise of US shale oil — which is more expensive to produce, according to analysts, and which is eating into OPEC’s market share.
“OPEC is dominated by Saudi Arabia and Kuwait, who also have the highest tolerance for low oil prices due to the economies of scale generated by their huge super fields,” analyst Nick Campbell at British-based consultancy Inspired Energy said.
“Therefore, in order to combat low demand and a new supply threat — both mainly in the United States — the trick is to drop your price,” he said.
Technological innovations have unlocked shale resources in North America and raised daily US oil output by more than 40 percent since 2006, but at a production cost which can be three or four times that of extracting Middle Eastern oil.
Poorer cartel members — including Venezuela and Ecuador — had called unsuccessfully for OPEC to trim production as tumbling prices were slashing their revenues.
“OPEC is showing that it has become powerless versus the North American supply push,” Petro Matrix analyst Olivier Jakob said.
“Saudi Arabia knows that in a low price environment it will be the last one standing,” he said.
By Friday on London’s Intercontinental Exchange, Brent North Sea crude for delivery in January sank to US$73.05 a barrel compared with US$79.56 one week earlier.
On the New York Mercantile Exchange, West Texas Intermediate or light sweet crude for January dived to US$69.13 a barrel from US$75.80 a week earlier.
BASE METALS: Base or industrial metal prices fell across the board, as the sector failed to shrug off the impact of tumbling crude oil prices.
“The slump in oil prices has not left the base metals unscathed,” Commerzbank analysts said in a research note to clients.
“Copper, for example, has dropped below the US$6,500-per-tonne mark... to hit an eight-month low,” they said.
“Alongside this external factor, news from Peru is doubtless also weighing on the price. According to union statements, workers there will on Monday be ending a strike that has been under way for three weeks now at the Antamina copper-zinc mine after it was declared illegal by the labor ministry,” they said.
Base metals shed some of the gains that they won the previous week, when a surprise interest rate cut in China sparked hopes of soaring demand in the key Asian powerhouse nation.
By Friday on the London Metal Exchange, copper for delivery in three months dropped to US$6,427.50 a tonne from US$6,739.75 a week earlier.
Three-month aluminum declined to US$2,025 a tonne from US$2,061.25.
Three-month lead reversed to US$2,030 a tonne from US$2,063.
Three-month tin fell back to US$20,140 a tonne from US$20,295.
Three-month nickel dipped to US$16,240 a tonne from US$16,463.
Three-month zinc decreased to US$2,221.25 a tonne from US$2,302.
PRECIOUS METALS: Gold lost its shine, falling as traders nervously eyed this weekend’s Swiss “gold referendum.”
As Switzerland prepares to vote on whether to force the country’s central bank to increase its gold reserves, economists warn a “Yes” vote could wreak havoc in financial markets.
The initiative “Save Switzerland’s gold,” which is to be put to a popular referendum vote today, would oblige the Swiss National Bank to boost its gold reserves to at least 20 percent of its holdings, which is nearly three times more than the current level of 7 percent.
It would also require the bank to stop selling its gold and repatriate reserves held in Canada and Britain to ensure that all of its holdings of the precious metal are stored within Switzerland.
“Gold prices have continued their retreat from US$1,200, although the US$1,180 level is providing support for the price for the time being,” IG analyst Chris Beauchamp said.
“The Swiss gold referendum on Sunday is expected to see a defeat of the motion, which should create further selling pressure as the new week dawns,” he said.
Industry organizations have also warned that the move would tie the central bank’s hands and damage its credibility.
Financial markets are wary of the consequences if the initiative passes in a country that already counts the world’s highest gold reserves per inhabitant.
By late Friday on the London Bullion Market, the price of gold recoiled to US$1,182.75 an ounce from US$1,203.75 a week earlier.
Silver slipped to US$15.97 an ounce from US$16.30.
On the London Platinum and Palladium Market, platinum stood at US$1,205 an ounce against US$1,230.
Palladium, however, increased to US$809 an ounce from US$794.
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