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Financial Times: Broad falls for oil and metals but grain higher

By Chris Flood
Published: June 27 2007 03:00 | Last updated: June 27 2007 03:00

Commodity prices staged a broad based retreat yesterday as risk aversion rose following comments from the International Monetary Fund which highlighted mounting inflationary pressures in the global economy.

Oil prices fell by more than $1 a barrel, holding above the $70 level, but the sell-off also spread across base and precious metals.

ICE July Brent dropped $1.06 cents to $70.30 a barrel while Nymex August West Texas Intermediate retreated $1.20 to $67.98 a barrel.

Sentiment towards oil has weakened following the end of a general strike at the weekend in Nigeria, the world’s eighth-largest exporter. However, earlier hopes that Shell would re-open the 400,000 barrels a day Forcados export terminal in Nigeria next month were contradicted by a company official who said the facilities were damaged and required repair before production could resume.

US inventories data, due for release today, will provide an update on the outlook for petrol supplies over the summer, the peak months for demand.

US refinery utilisation is 7.5 per cent below its five-year average and problems are continuing, with several refineries in Texas reporting production problems over the weekend. However, a preliminary poll of analysts by Reuters suggested a modest rebound was likely with refinery utilisation expected to rise 1.1 percentage points to 88.7 per cent. This was expected to help petrol stocks rise by 1.1m barrels.

Nymex July RBOB gasoline fell 4.7 cents to $2.2555 a barrel.

Copper lost 1.6 per cent to $7,362.5 a tonne in spite of strike threats in Latin America. Sub-contractors at Codelco, the world’s largest copper producer, are demanding higher wages and improved working conditions.

“The market is not fully aware of the degree of the troubles in Chile,” said Robin Bhar at UBS. “Global inventories remain low and there is not an adequate cushion against supply shocks.”

Lead hit a record at $2,730 a tonne but ended 4.9 per cent lower at $2,580 a tonne. Lead’s record breaking run has attracted large speculative inflows but short-term traders were liquidating positions yesterday as sentiment across the base metals complex weakened.

Nickel fell 3.7 per cent to $37,650 a tonne while zinc sank 3.5 per cent to $3,405 a tonne amid concerns that exports from China are about to increase substantially.

Gold fell 1.1 per cent to $644.20 a troy ounce, as technical selling was prompted by a retreat through support levels around $648, amid nervousness about the outlook for interest rates.

James Steel of HSBC said if tighter monetary policies led to a re-pricing lower of physical assets, such as real estate, gold prices could also be expected to decline.

Platinum lost 2.1 per cent at $1,265 a troy ounce as traders liquidated long positions amid a lack of news from South Africa regarding wage negotiations between unions and precious metals producers.

In Chicago, wheat prices rallied strongly after official Canadian estimates for 2007 wheat seedings were reduced to 21.7m acres from a March estimate of 23.8m acres. CBOT July wheat rose 20½ cents to $6.10 a bushel after the USDA trimmed “good to excellent” estimates for both the winter and summer wheat crops.

Corn rose 5 cents to $3.62¾ a bushel with traders awaiting the vital USDA June report on Friday for an update on plantings and year-end stock projections.

Copyright The Financial Times Limited 2007

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