Oil (FT)

Oil breaches $60 as market tightens
By Chris Flood
Published: February 9 2007 12:24 Last updated: February 9 2007 18:17
Oil prices pushed above $60 a barrel level on Friday for the first time since early January, helped by short-covering and growing evidence that the market is tightening as a result of output cuts introduced by the Organisation of the Petroleum Exporting Countries.
Nymex March West Texas Intermediate hit a high of $60.42 before easing back to trade 16 cents higher a $59.87 a barrel, up 1.4 per cent over the week. US crude has risen 20 per cent since dipping below the $50 level in mid-January, with colder weather boosting demand.
Speculators’ gross short positions on crude are close to record highs and hedge funds rushed to cover those position after Occidental Petroleum declared force majeure on oil and gas supplies from the Elk Hills field, one of California’s largest, on Thursday. ICE March Brent fell 11 cents to $58.67 a barrel on Friday, up 0.9 per cent over the week.
Colder weather has also supported demand for heating oil and natural gas. Nymex March Henry Hub rose 1.5 per cent to $7.865 per million British thermal units this week. Nymex March heating oil gained 2.5 per cent at $1.726 a gallon.
Gold smashed through resistance at $660 a troy ounce, surging to $665.70, helped by a second day of buying by the Quadrica fund.
Investors shrugged aside news that the International Monetary Fund was considering selling 400 tonnes of bullion as, though the plan would displace some European sales under the central bank gold agreement, it would not result in more net selling. Gold traded at $665.10 a troy ounce late in London on Friday, up 2.6 per cent this week.
Platinum hit $1,203 a tonne as strike action at South Africa’s Modikwa mine looked set to enter its third week after negotiations reached deadlock. Platinum traded at $1,192 a troy ounce, up 3 per cent this week. Hedge funds have been building long exposure with speculative positions standing just short of their April 2006 record high.
The US corn harvest is projected at 10,535m bushels this year, down 1.9 per cent on the previous year, according to the Department of Agriculture. Year-end crop inventories are expected to shrink to 752m bushels, the lowest since 1995. Nymex March corn traded 4¼ cents higher at $4.04 a bushel on Friday, 0.5 per cent firmer this week.
Base metals traded in consolidation mode after last week’s sharp falls. News about Red Kite had dried up until South Korea yesterday revealed that it had bought 500 tonnes of tin ingot recently from the hedge fund, which is rumoured to be in trouble. Traders were undecided if this was an attempt to raise funds or normal business. Tin rose 5.3 per cent this week to $12,325 a tonne.
Copper rose 4.2 per cent to $5,570 a tonne while aluminium edged 0.8 per cent lower to $2,697.50 a tonne. Nickel fell 3.5 per cent to $36,100 a tonne in spite of stocks’ remaining critically low. But zinc rallied 1.6 per cent to $3,130 a tonne.
One analyst said: “the market is trying to convice itself that it’s business as normal but some investors are questioning whether it is worth persisting with long strategies or if they need to reasses in the face of recent price weakness.”