Global Recap – 20th Jan, 09

Crude oil rallied in volatile trading as the NYMEX February crude contract approached expiration. Crude oil had slumped amid concerns over slumping demand in a weak economy and Russia's resumption of natural gas flows to Europe via Ukraine. A stronger dollar and weaker equities had also weighed on the oil complex. Russian natural gas reached Europe via Ukraine for the first time in two weeks. The dollar climbed broadly, boosted by sterling's tumble to a 7-1/2 year low, while the view that the euro zone will suffer a deep recession pushed the euro to a six-week low. Elsewhere OPEC is fully enforcing its recent supply cuts, which should be enough to boost prices that have slumped below $40 a barrel, OPEC's president told. Kuwait has informed all customers of cuts in oil supply in line with OPEC's December curbs, state oil company Kuwait Petroleum Corp said.

Gold surged amid market talk of a large order, with firm investment demand for gold as a haven from risk fuelling buying of the precious metal. Gold shrugged off early weakness linked to a strengthening U.S. dollar and weaker oil prices. The dollar rose to a six-week high against the euro as traders worried about the outlook for the euro zone economy, after the European Commission issued a grim forecast for 2009 an Standard and Poor's cut Spain's debt ratings. The other main external driver of gold, crude oil, steadied after tumbling almost 10% in earlier trade, after Russia and Ukraine agreed on a gas deal that will help secure supplies to Europe and traders worried over the outlook for demand. Overall, fears over the outlook for the global economy and the financial system are boosting interest in products like exchange-traded funds which issue securities backed by actual stocks of gold.

Copper tumbled on a stronger dollar and as a jump in inventories added to concerns about demand. However supplies are still growing as evidenced by the inventory accumulation so there is more pain to come. Copper dragged all the industrial metals lower, with aluminum falling to its lowest price since July 2003 and nickel down around 4%. Stocks of copper and aluminum, the two biggest contracts on the LME, have been growing as prices for the two metals have slumped about 60% since last July's record highs. Furthermore copper inventories in LME warehouses jumped 15,425 tonnes the biggest one-day jump since Sept. 4 to 409,100 tonnes, the highest price since January 2004 when prices were around $2,375. China's economy in the fourth quarter probably grew 7.0% from a year earlier.


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