Oil spikes on OPEC deadlock; corn hits record

June 11, 2011 | 08:13
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World oil prices surged this week after Saudi Arabia failed to clinch agreement over an OPEC output boost, while corn hit a record peak as the US Department of Agriculture cut its inventories forecast.

"The main story that dominated the markets this week was the OPEC meeting in Vienna, amid expectations of a potential increase in oil output. However, OPEC ministers failed to reach an agreement" and kept quotas unchanged, said Sucden analyst Myrto Sokou.

But markets tailed off late Friday as many traders took their direction from a dollar rally. The stronger greenback makes dollar-priced raw materials more expensive for buyers using weaker currencies, thereby hitting demand and prices.

OIL: Prices rallied following OPEC's decision to maintain its crude production ceiling, but ran out of steam heading into the weekend as the dollar rebounded.

The Organization of Petroleum Exporting Countries (OPEC) on Wednesday kept its official output target at 24.84 million barrels per day, where it has stood since January 2009, after its deeply divided 12 members could not agree on an increase.

"OPEC's lack of resolution will have no impact on crude oil production but still sent a bullish statement to the market since several OPEC members obviously are content with the current high price level," said SEB analyst Filip Petersson.

The announcement sent oil prices soaring. Traders had speculated that the organization would lift its production quotas to help cool oil prices and in turn boost economic recovery.

New York crude was catapulted to $102.44 on Thursday, touching a pinnacle last reached on May 11.

And Brent oil rallied as high as $120.07 in early Asian trade on Friday, breaching $120 for the first time since May 5.

OPEC's announcement meanwhile exposed deep divisions within the cartel. Kuwait, Saudi Arabia, Qatar and the United Arab Emirates had called for a boost of 1.5 million barrels to the ceiling. However fellow members rejected the idea, fearing that an increase would cause oil prices to fall, denting their income.

"The market was expecting an increase of the production quota figures or an actual increase on production and what we got was no action on either front," said Andy Lipow at Lipow Oil Associates.

Saudi Arabian Oil Minister Ali al-Naimi, speaking to reporters after the decision, said it was "one of the worst meetings we ever had."

Analysts said the cartel would continue to pump above the official quota as it compensates for the loss of supplies from Libya, where unrest has ravaged supplies.

By late Friday on London's Intercontinental Exchange, Brent North Sea crude for delivery in July jumped to $118.26 a barrel from $115.12 the previous week.

On the New York Mercantile Exchange, West Texas Intermediate (WTI) or light sweet crude for July eased to $99.39 a barrel from $99.75.

GRAINS AND SOYA: The price of corn, or maize, rocketed to an all-time peak at $7.99 per bushel on Friday, propelled by supply fears after the United States slashed its production forecasts.

The US Department of Agriculture (USDA) on Thursday cut its inventories forecast for the new crop year to 335.3 million tonnes. That compared with the previous estimate of 343 million.

"Corn prices jumped as the USDA revised corn production estimates significantly lower this week due to reduced acreage," said SEB commodities analyst Filip Petersson.

"Planting delays on wet and cold weather has forced some farmers to switch acreage from corn to soybeans that can be planted slightly later than corn without the same risk for yield losses.

"US and global corn inventories are exceptionally tight at the moment and relief will not come until the US harvest starts in September-October."

Sucden analyst Brenda Sullivan added that sentiment was dented on Friday by the rising US currency.

"The dry weather combined with the USDA report to push corn futures higher across the board yesterday. Today's trading seems impacted by a stronger dollar, with corn futures trading lower."

By Friday on the Chicago Board of Trade, maize for delivery in July advanced to $7.92 a bushel from $7.54 a week earlier.

July-dated soyabean meal -- used in animal feed -- slid to $13.85 a bushel from $14.08.

Wheat for July eased to $7.53 from $7.73.

PRECIOUS METALS: Gold pulled lower but still remains supported by low global interest rates and ongoing economic gloom.

By late Friday on the London Bullion Market, gold eased to $1,529.25 an ounce from $1,540 the previous week.

Silver rose to $37.38 an ounce from $35.19.

On the London Platinum and Palladium Market, platinum climbed to $1,829 an ounce from $1,807.

Palladium gained to $810 an ounce from $770.

BASE METALS: Industrial metals prices were pressured by fears over the strength of demand from key consumer China.

"China's imports continued to decline for May, according (to) the preliminary data," said Deutsche Bank research analyst Michael Lewis.

"We believe the complex is likely to remain under pressure for the summer months," he added.

By late Friday on the London Metal Exchange (LME), copper for delivery in three months fell to $8,931 a tonne from $9,006.25 the previous week.

Three-month aluminium eased to $2,610 a tonne from $2,627.50.

Three-month lead rose to $2,550 a tonne from $2,407.

Three-month tin slid to $25,401 a tonne from $25,810.

Three-month zinc rose to $2,256 a tonne from $2,239.50.

Three-month nickel dropped to $22,856 a tonne from $22,605.

COCOA: The market gained more ground amid lingering concerns over top producer Ivory Coast.

"While the main harvest in Ivory Coast is progressing well, there are still uncertainties about the current interim harvest on effects of the months-long political unrest," said Commerzbank analysts in a note to clients.

By Friday on LIFFE, London's futures exchange, cocoa for delivery in September jumped to £1,857 a tonne from £1,782 the previous week.

In New York on the NYBOT-ICE, cocoa for September rose to $2,987 a tonne from $2,875.

COFFEE: Coffee prices crept higher.

By Friday on NYBOT-ICE, Arabica for July firmed to 263.70 US cents a pound from 263.30 cents the previous week.

On LIFFE, Robusta for delivery in September rose to $2,511 a tonne from $2,496.

SUGAR: Sugar continued an impressive rally.

By Friday on NYBOT-ICE, the price of unrefined sugar for delivery in July rose to 24.36 US cents a pound from 23.86 cents the previous week.

On LIFFE, the price of a tonne of white sugar for August increased to £722.50 from £695.70.

RUBBER: Prices flattened amid a lack of fresh leads amid caution over the prospects for the world economy.

The Malaysian Rubber Board's benchmark SMR20 dropped slightly to 466.55 US cents per kilo from 466.90 US cents last week.


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