Lower oil prices and slowing global growth outside the US.

No changes in GDP growth upgrade following plunging oil prices: Merrill Lynch

BY RUPA DAMODARAN - 23 JANUARY 2015 @ 11:25 PM

KUALA LUMPUR: Lower oil prices have yet to result in any sizeable goss domestic product (GDP) growth upgrade for emerging Asia, partly because of slowing global growth outside the US, said Bank of America Merrill Lynch.

“Lower oil prices have, however, improved the trade surplus significantly, supporting the current account balance and forex reserves positions.”

The research house said lower oil prices have also resulted in a sharp drop in inflation, particularly in Thailand, Philippines and India, which has allowed central banks to stay accommodative.

The Reserve Bank of India cut policy rates last week as inflation pressures and expectations fell sharply, while markets are starting to price in possible cuts in Thailand and South Korea.

“Emerging Asian countries will likely see a boost to GDP growth in the range of 10 basis points to 45 basis points with every 10 per cent fall in oil prices, if the oil price drop was purely a supply shock.”

Big beneficiaries are consumers as fuel prices at the pump fall, it said.

Savings from reduced fuel costs could be channeled to investments, which for example, is showing in Indonesia's government doubling of capital spending.

”Malaysia, is however an exception and will see overall GDP growth slow with lower oil, given its heavy reliance on oil & gas revenues.”

The government downgraded the growth outlook and raised its fiscal deficit projections this week.

“We remain cautious on the fiscal and current account outlook, given the heavy fiscal dependence on oil and downward trajectory of LNG prices in the coming months.”

The research house has downgraded the average oil price to US$52 for 2015, with oil prices likely to spiral to US$31 per barrel at the end of the first quarter before recovering.

“Asia’s oil windfall will likely see a significant shift in the relative positions of sovereign wealth funds. Oil and gas-related sovereign wealth funds (US$4.3 trillion) – which account for about 60 per cent of total sovereign wealth funds -- will likely see their size stagnate or erode on falling oil prices.”

Falling oil prices will likely dampen the overall growth of sovereign funds, as a large proportion is oil-related.

Norway's government pension fund (US$893 billion), Abu Dhabi Investment Authority (US$773 billion) and Saudi Arabia's SAMA (US$753 billion) are the three largest sovereign funds in the world, and are all oil-related.

“Recycling of Asia-dollars might partly replace the recycling of petrodollars.”

Asian sovereign wealth funds (US$2.8 trillion) account for about 39 per cent of total sovereign wealth funds, and will likely see their size increase at a faster clip.

Sovereign wealth funds of China (CIC & SAFE), Hong Kong (HKMA), Singapore (GIC & Temasek) and Korea (KIC) rank in the Top-15 globally.

http://www.nst.com.my/node/70742

OPEC caution on output may help bring back $100 oil

Analysis: OPEC caution on output may help bring back $100 oil


By Barbara Lewis

LONDON | Wed Dec 29, 2010 8:31am EST

"Prices have not yet risen to $100/barrel and there is nothing mysterious about $100/barrel," he said. "It equates to no more than $80/barrel in 2005 dollars, once current prices are corrected for inflation."

In nominal terms, oil has risen 35 percent from a low hit in May and this week's peak was around 15 percent above the price at the end of 2009.

The current rally set in around September after the U.S. Federal Reserve embarked on its latest quantitative easing, which has triggered a wave of buying across financial markets.

Barclays noted total commodity assets under management had reached an all-time high after investors piled in.

Data from U.S. regulator the Commodity Futures Trading Commission released this week showed money managers extended their net long crude oil positions to a record.

"The Fed has in a sense been pushing the speculators. OPEC can very well argue it's not its role to add more oil," said Olivier Jakob of Petromatrix.

Still oil's strength has been modest by comparison with commodities that face looming shortfalls, such as copper, which has touched a series of records.

As oil began to rise in September, traders were contemplating record fuel inventories in the United States, the world's biggest oil user.

Stocks have since fallen, although a deep draw in crude stockpiles could have been in part because of year-end tax positioning. The latest U.S. data will emerge late Wednesday and Thursday.

In addition to stocks, OPEC has significant spare capacity, which it has pegged at around 6 million barrels per day (bpd).

Iraq, which is exempt from the OPEC system of supply curbs as it recovers from war and sanctions, has huge scope to grow.

Analysts have disputed it can meet a capacity target of 12 million bpd in around seven years, but even a slower increase would provide much of the extra oil needed to meet any rise in demand.

Its new oil minister said it aimed to increase output to 3 million bpd by the end of 2011, up from around 2.6 million bpd.

A Reuters poll saw the call on OPEC, as opposed to non-OPEC oil, increasing by 600,000 bpd in 2011. Overall oil use would rise by 1.5 million bpd.

Absolute demand would hit a new high, but the rate of demand growth is slower than the record of 3 million bpd in 2004, according to figures from the International Energy Agency.

Oil Price (Inflation-Adjusted)

Oil Price 1947 to May 2008

Oil could hit $100 if dollar doesn't surge:

Oil could hit $100 if dollar doesn't surge:  29 Jun 2010, 0342 hrs IST,REUTER

NEW YORK: Oil could hit $100 a barrel in 2011 if the dollar does not surge against the euro as it did this year and the economies of China and India expand enough to consume at least a third of production, Bank of America Merrill Lynch said in a forecast on Monday. US oil's benchmark West Texas Intermediate (WTI) crude and London's Brent crude were both expected to average $78 a barrel in the second half of this year and $85 through 2011, BofaML's Commodity Strategist Francisco Blanch told a media briefing on the bank's half-yearly global markets outlook. "We still think oil prices will cross $100 a barrel at some point next year but not if the dollar appreciates against the euro like it did this year," Blanch said. "Every 10 percent decline in the euro results in a 15 percent decline in oil over a three-month period." Also Read  → BP oil spill costs hit $100 mn/day  → Oil cos' investors to be rewarded with good dividends  → Deregulation of prices a relief to oil industry The dollar has risen 10 percent year-to-date against a basket of major currencies. The greenback's rally last month had sparked a sharp sell-off in commodities as investors holding other monies such as the euro suddenly found dollar-denominated commodities costlier. Growth in China and India was also key to oil prices, Blanch said. "If China and India account for 35 to 40 percent of the world's growth in oil demand, then it's possible to hit $100." US crude last traded above $100 in October 2008, just before the onset of the recession. WTI's front-month contract in New York settled at $78.25 a barrel on Monday. Despite the threat to recovery from the European debt crisis, the world economy was still expected to grow by 4.4 percent this year and lend support to a cyclical, across-the-board rise in commodity prices, Blanch said. "We see a significant increase in the demand for energy and industrial commodities around the world," he said. "The commodity super-cycle is not over. It is just pausing." Even so, investors should beware of price swings, he said. "The volatility in commodity prices will remain high compared to historical averages due to structural supply and demand imbalances," Blanch said. For natural gas, BofaML said it did not expect the weakness in the commodity to dissipate any time soon due to comfortable supplies. New York-traded gas futures are down about 15 percent on the year, settling on Monday at $4.717 per million British thermal units. For copper, the bank forecast the benchmark three-month contract on the London Metal Exchange to average $7,275 a tonne this year and $8,000 a tonne in 2011, due to tighter supplies. LME copper settled at $6,869 a tonne on Monday. BofAML also said it expected gold to rally to new record highs of around $1,500 an ounce by the end of 2011 as more central banks around the world seek the precious metal for their reserves.

Volatilities in other markets when the DOW plunged almost 1000 points

Offshore overnight

In one of the most dizzying half-hours in stock market history, the Dow Jones industrial average plunged almost 1000 points amid worries about European debt.

The Dow managed to recover two-thirds of its losses before the end of Thursday's Wall Street session, but all major indices closed sharply lower on a day that recalled the market turmoil of the 2008 financial crisis.

There were reports that a technical glitch hastened the selling.

Even so emotions ran high, with traders concerned that Greece's economic problems will hurt other European countries and ultimately, the US recovery.

Only 173 stocks rose on the New York Stock Exchange while 3002 fell.

Volume came to an extremely heavy 2.57 billion shares.

When markets settled, the Dow Jones Industrial Average had fallen 347.80 points, or 3.20 per cent, to 10,520.32 points.

The Standard & Poor's 500 index closed down 37.72 points, or 3.24 per cent, at 1128.15 points.

The Nasdaq composite closed down 82.65 points, or 3.44 per cent, at 2319.64 points.

European stock markets lost ground on Thursday as remarks on the Greek crisis by the head of the European Central Bank failed to reassure anxious investors.

ECB head Jean-Claude Trichet ruled out a Greek debt default and insisted that the problems besetting Greece were different from those faced by Spain and Portugal.

The London FTSE 100 closed down 80.94 points, or 1.52 per cent at 5260.99 points.

The German DAX 30 closed down 50.19 points, or 0.84 per cent, at 5908.26 points.

The French CAC 40 index closed down 79.92 points, or 2.20 per cent, at 3,556.11 points.

Commodities

Oil prices dropped to levels not seen since February on Thursday, as the stock market posted huge losses.

The benchmark crude oil for June delivery contract fell $US2.86 to settle at $US77.11 a barrel on the New York Mercantile Exchange.

Oil hit $US73.71 on February 16 and has lost almost $US10 a barrel since Monday.

Crude was lower at noon and the price slide picked up speed as the stock market tumbled and Investors flew to safer havens in gold and bonds.

Europe's debt problems got much of the blame for the drop in stocks and commodities. The ongoing crisis also has undermined the euro and strengthened the US dollar.

Commodities priced in US dollars, such as oil, become more expensive for investors holding euros as the US dollar rises.

In London, Brent crude gave up $US2.78 to settle at $US79.83 on the ICE futures exchange.

Gold for June delivery rose $US22.30 to settle at $US1197.30 an ounce on the Comex division of the New York Mercantile Exchange.

Silver for July delivery fell 1.9 US cents to settle at $US17.515 per fine ounce.

Copper for July delivery settled down 3.45 US cents at $US3.1170 per pound.

AAP, with Chris Zappone BusinessDay

http://www.smh.com.au/business/markets/stocks-set-to-plunge-after-us-freefall-20100507-uhc0.html

Return of high oil prices threatens real damage

Return of high oil prices threatens real damage

By Jeremy Warner Economics Last updated: October 20th, 2009


Interest rates at close to zero are driving the price of virtually everything else wild, so it should come as little surprise to see oil back above twelve month highs. OK, so it is still a long way from the crucifying $140 a barrel it reached in the summer of last year, but prices have nearly doubled so far this year and at more than $80 a barrel, they are again high enough to cause real economic damage.

By common agreement, it was the collapse of Lehman Brothers which plunged the world into deep recession, and no doubt the destruction of confidence in the banking system was a major cause. But what’s often over looked is the role played by high energy prices. These had reached crippling levels by the summer of 2008, and were causing real damage to industry and business. American consumers took one look at prices at the pumps and collectively decided to stop spending. This collapse in consumer and business confidence preceded the Lehman debacle.

The world economy is said to be a great deal less vulnerable to high oil prices than it was 30 or 40 years ago, but they still self evidently have the power to shock. Most post war recessions have been preceded by a spike in the oil price. So to see the price back at elevated levels (see accompanying chart) before a proper economic recovery has even taken hold is a cause for some concern.

Having peaked in the summer of last year at over $140 a barrel, the oil price then plunged. But now it is back up to over $80.

In part, today’s relatively high price is merely a function of dollar weakness. Abdallah El-Badri, Secretary General of OPEC, insists that there is no shortage of oil. The rally to more than $80 a barrel is driven by higher equity prices, the sliding dollar and speculation”, he told Bloomberg News.

There are plainly fundamental forces at work too. Emerging market economies, particularly those of China and India, are once more booming. Yet I suspect the main mischief is again speculation. With interest rates at close to zero, you cannot get a return on cash right now, so money is being poured into riskier assets, including commodities and oil.

An interesting article in the Financial Times this morning puts the near term upward pressure on oil prices down to heavy trading in options contracts ahead of the year end. Quite a lot of this activity is driven by forward hedging for real economy clients. But there is also a significant amount which is purely speculative in nature.

Is it right that speculators should once more be putting the health of the world economy at risk? Speculation, it is often said, only reflects underlying realities. The speculator only makes money if his bets mirror the real economy pressures of supply and demand. Maybe, but cheap money in the quantities now being provided by central bankers and governments creates distortions which stand to upset these delicate balances.

If the price gets back to $100 or more, a double dip recession in advanced economies would seem a virtual certainty. They are all still too fragile to be able to tolerate such a rise in costs.


Tags: Abdall El-Badri, banking crisis, Lehman Brothers, oil, oil price spikes, OPEC, recession, speculation

http://blogs.telegraph.co.uk/finance/jeremywarner/100001422/return-of-high-oil-prices-threatens-real-damage/?utm_source=Telegraph.co.uk&utm_medium=TD_oil&utm_campaign=Finance2110

Why the oil price will rise

http://www.telegraph.co.uk/finance/newsbysector/energy/oilandgas/5777807/Video-Why-the-oil-price-will-rise.html

Fundamentals driving oil prices higher: BP economist

Fundamentals driving oil prices higher: BP economist

by

Cheow Xin Yi

Last 5 articles by Cheow Xin Yi

• Fundamentals driving oil prices higher: BP economist
• Room for SMEs here: Iswaran
• MyHome Fund: For a stake in Singapore
• DBS speaks out about GE move
• No rush for offer by Great Eastern Holdings

05:55 AM Aug 07, 2009

OIL prices are poised to climb higher in the coming years as consumption by industrialising nations are expected to outstrip that of the developed countries, predicted BP chief Asia economist Dr Zhang Chi.

Presenting the latest BP Statistical Review of World Energy report at a briefing yesterday, Dr Zhang pointed out that consumption of coal by industrialising nations have already surpassed that of Organisation for Economic Cooperation and Development (OECD) countries since 1998. And last year, these developing countries have also caught up with consumption on the natural gas front.

Dr Zhang believes it is a matter of time before developing countries will surpass OECD ones in terms of oil consumption.

When this happens "in the next few years", it will put pressure on oil prices to move higher, he said.

"Oil prices are affected by marginal demand ... and in the long term, the trend will put pressure on the margin and it depends on whether that price will bring in more oil on the supply side," he said.

Already, the primary energy consumption of non-OECD countries, including China, has - for the first time - exceeded OECD consumption last year. China alone accounted for nearly three-quarters of global growth in energy consumption, said BP in its report. World energy consumption is measured by the consumption of various fuels such as oil, natural gas, coal, nuclear and hydro power.

When asked how important are speculators in the energy markets, Dr Zhang said: "The fundamental drives the direction, the speculation may add on and follow that trend, rather than determining the trend."

"If you look at last year's fuel price volatility, coal prices were more volatile than oil (prices), but nobody was saying somebody was speculating in coal.

"So, in a sense, speculators look at the same data that we look at - they are not stupid - they look at the fundamental supply and demand trends and then they make their bets," he said.

Five ways to profit from oil

Five ways to profit from oil
Analysts warned last week that the average price of fuel could reach 115p a litre over the next few months - motorists will lose out but investors could profit from this rise.

By Rosie Murray-West
Published: 12:40PM BST 08 Jun 2009

Motorists are facing a summer of rising petrol costs, thanks to recent increases to the price of oil. Analysts warned last week that the average price of fuel could reach 115p a litre over the next few months.

Goldman Sachs, the city bank, has raised its forecast on the price that oil will reach by the end of 2009, which has already convinced many speculators to take the plunge. If you think that oil has further to go, however, there are still ways that you can benefit – rather than just fuming at the petrol pumps. Here are five ways to speculate on oil.


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1. Buy the big boys
BP and Shell are Britain's two big oil and gas companies. Both have been popular buys due to their high dividend yields and exposure to the price of oil. Neither company is expected to cut its dividend in the coming months, although this is likely to lead to an increase in borrowing.

Potential investors in Shell should note that UK investors need to buy Shell's 'B' Class shares.

2. Consider the minnows
BP and Shell may be the supertankers of the oil market, but you can also buy shares in other smaller companies which will also give you exposure to this market.

Many of them have already enjoyed healthy price rises, however, and you may feel that there is little scope for future gains. Tullow Oil and Soco International have recently seen huge rises in price. Dragon Oil and Bowleven are other possibilities in this sector.


3. Look at funds
If you invest in funds, exposure to the oil price is actually quite hard to avoid as commodities and resources companies make up about a third of the FTSE Index. However, some are more heavily exposed than others. Two BlackRock funds – BlackRock Commodities Income investment trust and the Blackrock World Energy fund – have large oil investments.

Investec Global Energy is another hefty investor in a combination of oil producers, refiners and services companies. If you are looking to take risk in this area, the CF Junior Oils Trust invests only in smaller gas exploration and production companies, including many of the minnows mentioned above.


4. Try an ETF or ETC
Exchange Traded Funds and Commodities have become increasingly popular with investors seeking easy ways to take a punt on commodities or indices. An ETF is a relatively low-cost way of gaining exposure to the price of a commodity or to a specific index for either the short or long term.

They can be bought through stockbrokers. Lyxor, for instance, offers the Lyxor DJ Stoxx 600 Oil and Gas ETF, or ETF Securities offers a crude oil fund.

However, buyers of these funds should beware an effect known as 'contango', which occurs when oil prices for future delivery are higher than the current oil price. This effect has caused erosion on funds that invest in near-term futures contracts based on the price of oil, so ETF investments may not be as simple as they seem. Do consult a stockbroker if you are keen on investing in ETFs.

5. Spread betting
Many investors have been seduced by spread betting as a low-cost way of gambling on the price of commodities, but you should always beware the risks. With spread betting, you would take a bet on the future movement of the oil price, but could lose out very rapidly if the price goes the other way.

Companies such as City Index, Cantor Finspreads or IG will allow you to take a bet on the future price of Brent crude. However, do not indulge in spread betting unless you are sure you understand the implications and have appropriate measures in place to limit your losses.

Oil prices breach 58 dollars

Agence France-Presse - 5/8/2009 7:44 PM GMT

Oil prices breach 58 dollars

Oil prices breached 58 dollars per barrel Friday as better-than-expected jobs data in key energy consumer the United States signaled a possible easing of a severe economic slump.

New York's main futures contract, light sweet crude for delivery in June, rose 1.92 dollars from Thursday's closing price to end at 58.63 dollars a barrel, capping a more than 10 percent rise over the week.

It hit an intraday high of 58.69 dollars on Friday, a level unseen since mid-November.

Brent North Sea crude for June delivery climbed 1.67 dollars to close at 58.14 dollars a barrel, after touching 58.30 dollars.

Amid the rally, some worried the jumping prices could dampen the very prospects of recovery.

"Energy bears are stunned. They say it is impossible and there is no reason for it," said Phil Flynn of Alaron Trading. "Energy seems to be defying gravity.

"The bears and the rest of the world are waking up to the fact that something has changed in the energy complex," he said.

Flynn said oil demand was still tepid and the rising prices might dampen demand.

This week, oil has also won support from rising stock markets amid increasing signs of economic recovery in the recession-hit United States, traders said.

Crude oil was boosted Friday after official data showed that US labor market losses eased in April with 539,000 jobs axed, while the unemployment rate hit 8.9 percent, suggesting the economy may be stabilizing.

The jobless rate hit its highest level since September 1983 but the pace of job losses slowed appreciably, offering another possible sign of an easing of the severe economic slump.

The number of job losses was not nearly as bad as the consensus Wall Street estimate of 600,000 in the Labor Department monthly payrolls report, one of the best indicators of economic momentum.

Prices have posted solid gains this week on hopes of a recovery in energy demand, but they remain far below last July's record peaks above 147 dollars a barrel.

"Oil prices have been surging this week on titbits of information indicating that the economic crisis has reached its trough and that recovery could be around the corner," said analysts at JBC Energy.

The markets were also reassured by the release of "stress tests" on the US banking system, with major lenders seen as being able to cover capital shortfalls.

"US banks appear to be doing better than everybody thought according to the Fed's preliminary release on the stress test, while the rate of job losses in the country has slowed," JBC analysts said.

"In the wider picture there are also tentative signs that economic activity in China and India has been picking up with Chinese manufacturing having accelerated for the first time in nine months."

burs-pp/rl

Commodity prices climb on economic recovery hopes

Agence France-Presse - 5/8/2009 5:14 PM GMT

Commodity prices climb on economic recovery hopes

Commodity prices rallied this week, with oil striking 2009 highs on growing optimism about an economic recovery, as traders also tracked the results of key "stress tests" on troubled US banks.

"Commodity index returns have rebounded over the past week," said Deutsche Bank analyst Michael Lewis in a research note to clients.

"In our view, this reflects the market's less pessimistic assessment towards the global growth outlook. However, in most instances index returns are still trading lower on a year to date basis."

Financial markets appeared unruffled by the stress tests, which found that 10 major US banks need to raise a total of 74.6 billion dollars (55.7 billion euros) in new funds to shield against the risk of a further economic downturn.

Official data showed Friday that the US unemployment rate rose to 8.9 percent in April with 539,000 jobs lost, according to a report which was not as bad as feared by private analysts for the recession-stricken economy.

The jobless rate hit its highest level since September 1983 but the pace of job losses slowed appreciably, offering another possible sign of an easing of the severe economic slump.

The unemployment rate was in line with forecasts but the number of job losses not nearly as bad as the consensus Wall Street estimate of 600,000.

Earlier this week, a survey by payrolls firm ADP data showed that the US private sector shed 491,000 jobs in April, which was much lower than analysts had forecast.

OIL: Prices rocketed to near six-month highs above 58 dollars per barrel as stock markets gained on increasing signs of economic recovery in the United States, the world's biggest energy consumer.

"Crude oil prices are being driven higher by a combination of building confidence of a faster economic recovery, increased funds flow into commodities, and higher utilisation at US refineries," said Lewis.

"However we believe the fundamental outlook remains weak and that inventories are set to remain high."

Prices have posted solid gains this week on hopes of a recovery in energy demand, but they remain far below last July's record peaks above 147 dollars a barrel.

"Oil prices have been surging this week on titbits of information indicating that the economic crisis has reached its trough and that recovery could be around the corner," said analysts at JBC Energy.

"US banks appear to be doing better than everybody thought according to the Fed's preliminary release on the stress test, while the rate of job losses in the country has slowed.

"In the wider picture there are also tentative signs that economic activity in China and India has been picking up with Chinese manufacturing having accelerated for the first time in nine months.

"The Baltic Dry Index also surged by 8.9 percent, day-on-day, and was last seen at over 2,000 points; the Index is a daily average of the costs of shipping raw materials to end customers and so can be seen as a good barometer of the health of the world economy," added the JBC analysts in a research note.

However Nimit Khamar at the Sucden brokerage in London warned that oil prices could head lower in coming weeks should investors begin to show less optimism regarding an economic recovery.

By Friday, on the New York Mercantile Exchange (NYMEX), light sweet crude for delivery in June surged to 57.60 dollars a barrel from 52.11 dollars a week earlier.

On London's InterContinental Exchange (ICE), Brent North Sea crude for June soared to 57.28 dollars a barrel from 51.63 dollars a week earlier.

PRECIOUS METALS: Precious metals sparkled, with gold hitting 925 dollars per ounce on Thursday, drawing strength from the weak US currency.

A struggling greenback makes dollar-priced commodities cheaper for foreign buyers using stronger currencies -- and therefore tends to stimulate demand.

By late Friday on the London Bullion Market, gold rose to 907 dollars an ounce from 884.50 dollars the previous week.

Silver advanced to 13.90 dollars an ounce from 12.15 dollars.

On the London Platinum and Palladium Market, platinum increased to 1,149 dollars an ounce at the late fixing on Friday from 1,076 dollars.

Palladium leapt to 242 dollars an ounce from 212 dollars.

BASE METALS: Base metals prices soared on hopes that a global economic recovery would boost demand.

"Prices strengthened across the complex... as sentiment was boosted by a higher than expected figure for US employment data offering further evidence that the macro outlook may be beginning to improve," said Barclays Capital analysts.

"Sentiment towards the broader global macro outlook has been turning more positive recently and this is being reflected in base metals prices."

By Friday on the London Metal Exchange, copper for delivery in three months climbed to 4,763 dollars a tonne from 4,515 dollars the previous week.

Three-month aluminium jumped to 1,564 dollars a tonne from 1,518 dollars.

Three-month lead rose to 1,484 dollars a tonne from 1,356 dollars.

Three-month tin surged to 14,214 dollars a tonne from 12,475 dollars.

Three-month zinc increased to 1,557 dollars a tonne from 1,475 dollars.

Three-month nickel rallied to 13,303 dollars a tonne from 11,725 dollars.

COCOA: Cocoa prices advanced on signs of strengthening demand.

By Friday on LIFFE, London's futures exchange, the price of cocoa for delivery in July rose to 1,751 pounds a tonne from 1,703 pounds the previous week.

On the New York Board of Trade (NYBOT), the July cocoa contract gained to 2,507 dollars a tonne from 2,388 dollars.

COFFEE: Coffee prices also climbed, hitting 125.80 US cents per pound in New York -- a level last seen on February 9.

By Friday on LIFFE, Robusta for delivery in July increased to 1,493 dollars a tonne from 1,475 dollars the previous week.

On the NYBOT, Arabica for July stood at 125.20 US cents a pound from 116.35 cents.

GRAINS AND SOYA: Prices gained ground amid production delays and higher crude oil prices. Corn, or maize, is used to produce ethanol -- a clean plant-based fuel which is cheaper than oil.

"Support for corn prices stems from delays in corn plantings especially in the eastern US corn belt, as well as the strong rise in crude oil prices," said Barclays Capital analysts.

By Friday on the Chicago Board of Trade, maize for delivery in July rose to 4.19 dollars a bushel from 4.13 dollars the previous week.

July-dated soyabean meal -- used in animal feed -- gained to 11.04 dollars from 10.91 dollars.

Wheat for July advanced to 5.80 dollars a bushel from 5.70 dollars.

SUGAR: Sugar prices surged close to a three-year peaks, stretching as high as 452.20 pounds in London and 15.60 cents in New York -- the highest points since July 2006.

"Sugar prices have shot higher on an anticipated tightening of stocks in India and on supportive developments in the biofuel industry in the United States," said Standard Chartered analysts.

Sugar is used to make ethanol, a cheaper alternative to gasoline used to power road vehicles.

By Friday on LIFFE, the price of a tonne of white sugar for delivery in August rose to 445.90 pounds from 431.80 pounds the previous week.

On NYBOT, the price of unrefined sugar for July increased to 15.37 US cents a pound from 14.47 cents.

RUBBER: Malaysian rubber prices tracked rising oil prices to close higher Friday.

Traders said the rubber price was also benefitting from tight supply. The price of natural rubber is linked with the cost of crude oil, which affects the price of synthetic rubber products.

The Malaysian Rubber Board's benchmark SMR20 was at 165.90 US cents per kilo, compared to 157.15 US cents on April 30.

burs-rfj/rlp

Opportunity Knocks: Has the oil price bottomed?

Opportunity Knocks: Has the oil price bottomed?
Few areas have escaped the stock market down turn – some have performed worst than others. The price of oil has fallen from a peak of $147 to around the $40 mark which could be throwing up a buying opportunity.

By Paul Farrow
Last Updated: 9:44AM GMT 13 Feb 2009

The oil price has fallen from a peak of $147 to around $44 a barrel Photo: BLOOMBERG NEWS
The financial crisis has left many assets and sectors battered and bruised. The stock market is down by more than 30pc over the past year. The global economy is on its knees but history suggests that equity markets will begin their recovery before GDP figures start to show strength again.

Investors who will gain the most will be those with either the nous or the brass neck to get in early. There are some fund managers that reckon that the fall in the oil price could open such an opportunity. The question is whether those investing in the sector now are jumping the gun?

Oil reached a peak of just under $150 a barrel last year – today it stands at jaround $40. The demand that pushed the price to record highs has slumped as many global economies have slowed. Some analysts are reticent to suggest how long the global recession will last, but when the stimulus injected by central banks begins to filter through the demand for oil will pick up.

Several already believe that investors should start to look at oil – they do not say the price has bottomed or a spike in the price is imminent, but they reckon that a floor cannot be too far away.

Demand for oil has collapsed because of the very weak economic conditions, and the price of oil has fallen as a result. Production is also falling – non-OPEC production peaked last year and is now on the decline.

This week, crude fell after the US Energy Information Administration revised down its 2009 global oil demand forecast by 400,000 barrels per day from its previous outlook, predicting demand will fall by 1.17 million bpd this year from 2008 levels. US crude stands at around $34 a barrel. London Brent stands at $45 a barrel.

But Killik, the stockbrokers sent a note to investors reckoning the "momentum is negative and crude is approaching oversold levels – short-term traders should go long at current levels with a tight stop loss'.

Mick Gilligan, an analyst at Killik says the price of oil is wrong in the medium term and says that his clients are buying exchange traded funds to benefit from the low price – particularly US oil which is lower than the price of Brent crude.

Chris Wheaton, Director, RCM, the specialist equity company of Allianz Global Investors, says: "Oil has been included in the January sales. Even if oil is only $50/barrel in 2010 it makes for a great investment opportunity right now. Low prices are encouraging more energy use – for example, gasoline demand in the US is now at the same level it was last year despite all the talk of a weak US economy. Sometime in 2009 or early 2010 we expect oil demand across the world to start to grow again.

"The credit crunch and uncertainty over oil prices are causing investment in new oil fields to be put on hold. However the big trends, such as rising energy use across emerging markets and natural declines in existing oil production won't disappear and will continue to push oil prices higher. This means were certainly going to have $100/barrel oil again by 2013, and makes longer-term investments in energy at today's prices look very attractive."

Robin Batchelor manager of the Blackrock World Energy fund says that both oil and gas prices are trading below their marginal costs, which are unsustainable for any reasonable time frame – but he admits that economic woes do raise concerns on the demand side of the equation.

He says:"However, energy equities are trading at P/E multiples at a discount to the broader market and are generally supported by asset valuations. Almost all the companies in the portfolio are well-capitalised and generating cash. At some point in the relatively near future, we believe fundamental factors will regain their importance as investors again return to traditional valuation techniques."

Gary Dugan, Chief Investment Officer, EMEA, Merrill Lynch GWM, reckons that for those who want to trade oil, we are very close to buying levels – anything below $35 is a buying opportunity.

He says: "When the oil price starts to move towards $30 a barrel it starts to cost more to extract oil than producers can get by selling it, so production facilities get shut down as they become uncommercial. We expect the annual production of oil to fall by as much as 5pc a year over the next five years, which should create a floor for the oil price. We believe that oil will bottom out at around $30, and will average between $40 and $45 over the course of 2009, subsequently rising to around $55-60."

But before investors rush to get a piece of the action, there are some who are not so sure now is the time.

Ian Henderson, who manages the JPMorgan Natural Resources Fund, is not convinced that now is the ideal time to invest in oil related plays – mainly due to the uncertainty of the US, which he says will dictate sentiment. He continues to bet on gold which makes up the lionshare of his portfolio at this juncture.

"The long-term view remains in tact but there is so much global uncertainty. But there are dozens of cargo ships floating around refineries because demand for oil is weak -there is plenty of oil floating around – it could be that we will have to wait until that is through the system before the price rises," he says. "However, many oil companies have strong balance sheets having been buoyed by the high price in the past which makes some oil stocks a useful hold for those looking for dividends – although so too do the likes of Vodafone and Glaxo."

For investors wanting to take advantage of any future rises in the price of oil, there are a number of choices. You could invest directly in the shares of the oil majors and production and service companies. Other options include investing in funds that look at the oil sector (Guinness Global Energy, JPM Natural Resources, Investec Energy), or in an exchange-traded fund, which is an investment vehicle that holds assets such as stocks or bonds.

Oil shares do not move directly in line with the oil price because there are other factors at work such as management skill, debt and the costs of distribution. However, there is a correlation over the longer term and they are paying decent dividends.

Remember that oil stocks in the UK make up a significant chunk of the FTSE100 so any tracker fund or General UK Growth fund that does not veer too much away from the index will benefit from any pick up in demand for oil – and those bumper dividend payments.

http://www.telegraph.co.uk/finance/personalfinance/investing/4609834/Opportunity-Knocks-Has-the-oil-price-bottomed.html

World oil demand forecast cut

Feb 11, 2009
World oil demand forecast cut

PARIS - THE International Energy Agency cut its forecast again for global oil demand this year on Wednesday, but warned about a future supply crunch because of current low investment levels.

The energy watchdog for industrialised nations forecast that global oil demand would measure 84.7 million barrels per day (bpd) on average in 2009 - 570,000 bpd less than its last forecast made in January.

At this level, demand would be 1.1 percent or 1.0 million bpd less than in 2008, when demand also fell compared with the year earlier.

'Not only will the two-year contraction in oil demand be the first since the early 1980s, but 2009's decline will also be the largest since 1982,' the IEA said in its monthly oil report.

The watchdog, which has been revising down its once-buoyant forecasts for oil demand steadily since the end of last year, said its revisions were based on new economic growth forecasts from the International Monetary Fund.

The IMF slashed its global growth forecast for 2009 at the end of January, saying the financial crisis and spreading economic problems would result in expansion of just 0.5 per cent, its lowest rate since World War II.

The bleak economic environment has pushed oil prices down to below US$40 (S$60) a barrel in recent weeks, far from their peaks of nearly $150 last year, despite production cuts by OPEC oil producers.

The Organisation of Petroleum Exporting Countries (OPEC) has slashed its output in successive decisions to try to support the plunging market.

The IEA, echoing warnings from industry insiders and OPEC members, warned that one of the effects of low prices would be a delay in investment in future capacity which will be needed once global growth picks up again.

'Ultimately, low prices sow the seeds of their own destruction, and only clear signs of a recovering global economy will spur investment in new oil supply,' the report said.

'The danger is that if too much investment slips now, the scale of the price response to resurgent demand could again destabilise the global economy,' it added.

The secretary general of OPE, Abdalla Salem El-Badri, said on Monday that members of the cartel had already postponed 35 oil drilling projects because of low crude prices.

He has said that OPEC members need a price above $50 per barrel for their exports to encourage investment and balance their government budgets.

Many expensive oil projects have been called off in the last 12 months, particularly in Canada's high-cost tar sands, but news that OPEC countries are also reducing investment has sounded an alarm for analysts. -- AFP

http://www.straitstimes.com/Breaking%2BNews/Money/Story/STIStory_337003.html

Will oil prices recover after tanking in 2008?

Will oil prices recover after tanking in 2008?
The oil price gyrated wildly in 2008 – but what's in store for the price in 2009, asks Garry White.

Last Updated: 5:56AM GMT 30 Dec 2008
Comments 17 Comment on this article

Oil prices have experienced wild fluctuations in 2008
The oil price gyrated wildly in 2008, hitting an all-time high above $147 a barrel on July 3 – followed by four-year lows. The big question now is: Where next?
Until the credit crunch saw global markets freeze, demand for oil had been rocketing, mainly because of rapid development in countries such as India and China.
However, the financial crisis changed that. Demand plummeted in the latter part of 2008 and global inventories grew. In the third quarter of 2008, US oil consumption shrank by about 1m barrels per day (bpd) – or around 5pc. It is likely to have fallen further in the fourth quarter.
To keep the market in balance, Opec cut supply. In December, the cartel, which controls 40pc of global oil output, agreed its deepest cut ever, bringing the total cut in quotas in the second half of 2008 to 4.2m bpd.
But even this failed to support the price, which fell almost 10pc in the next two sessions.
There were two reasons for this fall.

• It is obvious that demand deterioration continues as the global economy falls deeper into recession, but
• the market was also sceptical whether Opec members would comply with the cut.

This followed news that only 85pc of the previous 1.5m barrel quota reduction had been implemented.
The latest cut of 2.2m bpd is due to start on January 1. Analysts are unsure whether members will stick to their production quota, so there is uncertainty about oil supply over the next few months.
Then there's Russia, the world's second-largest oil exporting nation. Opec had hoped the country would join in with co-ordinated cuts in output. Russia sent its highest-level delegation ever to Opec's December meeting, but said it was not going to join in with Opec's actions. US pressure was probably behind Russia's decision. Analysts warned that Congress could campaign to have Russia thrown out of the G8 if it got too close to Opec.
One other cause of the oil-price spike was a slide in the value of the dollar. As the currency weakened investors bought dollar-denominated assets as a hedge against inflation, helping propel oil to close to $150 a barrel.
However, the global economy's deterioration saw investors repatriate assets they saw as risky. This caused a flight back into cash and these positions were unwound.
Over 2009, the currency markets are likely to be volatile and difficult to predict. If dollar strength persists, this is likely to keep the oil price subdued.
However, the Federal Reserve has slashed US interest rates and signalled that it could soon be printing money to try to stop the recession turning into a depression. Many analysts feel that this will be bearish for the dollar, and a dollar fall would once again boost the oil price.
Ultimately, what happens to the oil price depends on whether the recent fiscal stimulus packages work. If they do and economies improve then demand recovery will be bullish for the oil price.
If the packages fail the outlook for a recovery in oil prices is bleak. Economic contagion in the West is already hitting China's manufacturing base.
Earlier this month Merrill Lynch oil analyst Francisco Blanch said the oil price could drop to $25 in 2009 if China falls into recession. He put the chances of this happening at one in three. However, he added: "If we reignite economic growth, we will have a shortage of energy again." In this case, Mr Blanch predicted oil at $150 a barrel in two or three years.
Most analysts are downbeat on the oil price in the short term. Deutsche Bank analyst Michael Lewis said: "Many commodity prices are set to overshoot to the downside in response to the worst downturn in economic activity since the Great Depression."
In the long term, low oil prices could be damaging, as they stop investment in the discovery of new sources. Speaking at a recent summit of energy ministers held in London, Gordon Brown warned that if nations cut investment in oil production, demand will eventually exceed supply again, forcing prices up.
Geo-political issues may also come into play. The escalation of attacks between Israel and Hamas in Gaza caused a spike in the oil price on Monday. If problems persist in the region this is likely to provide a floor for the oil price in the early part of the year.
There are also the actions of the Movement for the Emancipation of the Niger Delta (MEND) in Nigeria. Attacks by the rebels contributed to the oil price spike in early 2008, as the country is the world's eighth-largest crude oil exporter and the US's fifth-largest source for imported oil. Major exporters Iran and Venezuela also continue to sabre rattle with the US, which could prompt more supply fears.
Ultimately, however, the outlook for the oil price in 2009 depends on where or not government action to tackle the economic crisis works. Mervyn King has warned that the UK could flirt with deflation in 2009 – and if deflation becomes a major global problem the outlook for the oil price is decidedly bearish.
Should the stimulus packages start to work and become reflationary this would be bullish for the price of oil. When it comes to the direction of the oil price in 2009, it's quite simple really – as Bill Clinton once said: It's the economy, stupid.

http://www.telegraph.co.uk/finance/financetopics/oilprices/4014817/Will-oil-prices-recover-after-tanking-in-2008.html

OPEC calls on UK to cut fuel duty or risk a long-term spike in oil

OPEC calls on UK to cut fuel duty or risk a long-term spike in oil
Oil cartel OPEC has called on Western governments, including Britain, to cut duty on petrol or risk fuelling a much higher oil price in the future.

By Rowena Mason Last Updated: 2:42PM GMT 19 Dec 2008

Saudi Arabia's Crown Prince Sultan at an OPEC summit in Riyadh, November 2007. Photo: REUTERS
Saudi Arabia's oil minister Ali al-Naimi and Abdalla S El-Badri, secretary-general of OPEC, said low demand was "wreaking havoc" for oil producers.
The producers claimed the collapse of prices to a four-year low of $36 a barrel is harming investment in the sector, creating supply problems for years to come. "A number of upstream projects have already been cancelled or delayed," Mr al-Naimi said at a meeting of energy ministers in London.
A cut in fuel duty, according to OPEC, would encourge cash-strapped consumers to buy more petrol, bolster demand for oil and encourage producers to develop new supplies.
Ministers from 27 countries and delegates from oil organisations convened at the London Energy Meeting, hosted by energy and climate change secretary Ed Miliband.
Prime Minister Gordon Brown gave an opening speech at the conference urging OPEC and other producers to continue to invest despite the crumbling in oil prices. Mr Brown also called for greater transparency in oil trading. Western governments have so far resisted the suggestion that speculation plays a large part in shaping oil prices, but the Prime Minister today proposed tougher regulation of the market.
He said "visionary internationalism" was needed to stamp out volatility, which he described as "one of the most pressing problems" for the world today. "Wild fluctuations in market prices harm nations all round the world," Mr Brown said. "They damage consumers and producers alike."
Oil producing members of OPEC blamed some of the severe volatility which has seen oil slump from a record $147 in July to below $40 on speculative futures trading.
The cartel operated by OPEC cut supply by a record 2.2m barrels a day this week, but failed to drive the price of oil back up to its target $75 a barrel. Mr al-Naimi for the first time pledged Saudi Arabia's support for investment in green alternative energy sources, if the "fair and reasonable" target price of $75 a barrel is reached.
The London summit follows a meeting in Jeddah, Saudi Arabia, earlier this year to tackle the huge increase in oil prices to $147 per barrel.
"If anyone had predicted then that oil prices would fall below $40 a barrel at the Jeddah meeting, they would have been transported to a mental institution," said Dr Noe van Hulst, secretary-general of the International Energy Federation.

http://www.telegraph.co.uk/finance/financetopics/oilprices/3850142/OPEC-calls-on-UK-to-cut-fuel-duty-or-risk-a-long-term-spike-in-oil.html

Oil at $40 a barrel will cause 'price explosion' in future

Oil at $40 a barrel will cause 'price explosion' in future
The oil cartel OPEC is right to warn that sharply falling oil prices will create a "price time-bomb for the future", experts have warned.

By Rowena MasonLast Updated: 7:16PM GMT 19 Dec 2008

The site of Saudi Aramco's (the national oil company) Al-Khurais central oil processing facility under construction in the Saudi Arabian desert. Photo: AFP
Saudi Arabia's oil minister Ali al-Naimi and Abdalla El-Badri, secretary-general of OPEC, said low demand was "wreaking havoc" by halting investment in the sector.
Oil prices in London fell near to $40 per barrel this week – down from a spike of $147 in July– prompting OPEC to cut supply by 2.2m barrels a day. Prices were closer to $35 in New York
If the low prices stop investment in exploration and production, there will be a shortage of oil in years to come, the producers said at a global summit in London.
Prime Minister Gordon Brown called for an end to oil trading volatility, acknowledging prices could jump sharply if investment faltered. However, energy minister Ed Miliband insisted that low oil prices were good for consumers and the world economy.
OPEC called on Western governments to cut fuel tax to help push prices back up to the "fair and reasonable" sum of $70 per barrel.
Inenco, the UK's largest energy analyst, agreed that slumping demand would ultimately cause prices to rocket.
Oil exploration and production projects in the Canada, USA, Mexico, Damman have recently been shelved because they have become uneconomical.
"The oil price would need to be in the range of $70-$80 a barrel to make these projects economically viable," said Inenco consultant Ian Parrett.
Sources close to BP said the oil company feared current lack of investment would create an undersupply in three to five years' time.
Barclays Capital said global spending on production will shrink 12pc to $400bn in 2009. .

http://www.telegraph.co.uk/finance/newsbysector/energy/oilandgas/3852773/Oil-at-40-a-barrel-will-cause-price-explosion-in-future.html

Why is oil price important?

What is the impact of oil price on the stock market?

Generally, most industrial-motor-related things need oil as a means to generate power. Thus, oil has been one of the most important commodities to most countries.

Any adverse impact on oil price could bring chaos to the world as fear of inflation would surface. In such an event, the world economies could be drawn to a standstill.

For example, the oil shock in 1973/74 and 1980/81 caused the world stock markets to tumble. Again in 1990, the Gulf Crisis also contributed to the collapse of the stock markets.

Such external shocks could happen again. Therefore, it would be helpful if an investor spent some time monitoring the oil price charts as well as any world events that could lead to another oil crisis.

Event
1973/74 oil shock
1980/81 oil shock
1990 Gulf Crisis
--------> sudden rise in oil price -> increase price of Brent crude
--------> World stock markets tumble.

To observe:

• Brent crude chart
• World events regarding oil prices

Ref: Making Mistakes in the Stock Market by Wong Yee