Commodities rally fizzled out as Fed downplayed need for more stimulus

Commodities rallied last week as the ECB offered cheap loans amid upbeat economic data but the gains fizzled out after US Federal Reserve chairman Ben Bernanke downplayed a need for more stimulus.
OIL: Brent crude struck a near four-year peak above $128 on Thursday following upbeat data and over fears of supply disruptions in major oil producer Saudi Arabia. Brent reached $128.40 a barrel - the highest level since July 23, 2008 - after an Iranian media report of a pipeline fire in Saudi Arabia, although Saudi officials later denied the story.
New York light sweet crude hit a nine-month high at $110.55 a barrel.
"The jump in price was prompted by an Iranian media report of an oil pipeline explosion in Saudi Arabia," said Commerzbank analyst Carsten Fritsch.
"When Saudi Arabia denied the report, the oil price shed part of its gains again. But half of the price increase has remained in place despite the denial from Saudi Arabia.
"Even if the original story came from Iran and no doubt was spread deliberately, the market clearly believes there to be an increased risk of supply shortfalls," he added.
The oil market began the week on the back foot, falling on Monday and Tuesday as traders cashed in profits and eyed speculation that the United States could soon release strategic oil reserves to help pull prices down. Serious concerns remain that elevated oil price levels will erode demand and derail the fragile global economic recovery.
"There are still fears that a high sustained oil price could harm economic growth," said Gary Hornby, analyst at British-based energy consultancy Inenco. "The Energy Information Administration (EIA) released 60 million barrels of oil in June 2011 in an attempt to artificially lower the oil price due to the loss of supply from Libya, and rumours persist over a possible repeat."
Crude futures began to rebound on Wednesday after the European Central Bank offered up cheap loans to lenders across the eurozone amid fears of a fresh credit crunch.
The ECB has made available 529.53 billion euros ($712 billion) to eurozone banks via its second three-year refinancing operation.
The ECB's liquidity injection helped offset the impact of a bearish economic forecast from Federal Reserve Chairman Ben Bernanke, who also appeared to downplay the need for fresh US stimulus measures.
"Prices began to reverse losses mid-week, as the ECB flooded the banking sector with three-year low interest loans, in an attempt to increase bank liquidity and reduce bond yields for struggling European economies such as Italy, Portugal and Spain," added Hornby.
"The move fed positive sentiment into the market, especially after US GDP data was upwardly revised for the final quarter of 2011 to 3.0 percent growth and Chinese manufacturing output grew quicker than anticipated, boosting future oil demand expectations."
The market also remains underpinned by ongoing geopolitical concerns over key crude producer Iran, which is the second biggest member of the Opec oil producers' cartel after Saudi Arabia. "While oil has benefited from central bank liquidity operations, it is also supported by concerns of an Iranian supply disruption," noted GFT analyst David Morrison.
The global supply outlook is already stretched by lower output from South Sudan, Syria and Yemen. By late Friday on London's Intercontinental Exchange, Brent North Sea crude for delivery in April edged up to $123.86 from $123.83 the previous week. On the New York Mercantile Exchange, West Texas Intermediate (WTI) or light sweet crude for April dropped to $106.51 from $108.23 the previous week.
PRECIOUS METALS: After a strong start to the week that saw silver and platinum notch five-month highs, precious metals prices tumbled and gold struck a one-month low point of $1,688.40 an ounce after Bernanke's comments. "The price slide was sparked by the semi-annual testimony of Fed chairman Ben Bernanke before the US Congress, for Bernanke quashed expectations of a further round of quantitative easing and gave a positive appraisal of the US labour market, which caused the US dollar to appreciate," Commerzbank analysts said in a note to clients.
A stronger dollar weighs on demand for commodities as it makes raw materials such as gold more expensive to purchase for buyers holding weaker currencies. By late Friday on the London Bullion Market, gold dropped to $1,707 an ounce from $1,777.50 the previous week. Silver fell to $35.21 an ounce from $35.57. On the London Platinum and Palladium Market, platinum decreased to $1,704 an ounce from $1,714. Palladium dipped to $713 an ounce from $714.
BASE METALS: Base metals gained on positive Chinese and US economic data, while aluminium prices reached the highest level for more than five months on tensions in the Middle East, before a bout of profit-taking. Aluminium reached $2,361.50 on Friday - the highest level since September 19 - owing to unrest in Iran and Syria.
"Aluminium is the most energy intensive base metal to produce, with energy accounting for, on average, 36 percent of total production costs, while second, it is the metal with the most capacity located in the Middle East, with close to 8 percent of total production in 2011," said Barclays Capital analyst Nicholas Snowdon. By late Friday on the London Metal Exchange, copper for delivery in three months jumped to $8,595 a tonne from $8,502 the previous week.
-----Three-month aluminium increased to $2,340 a tonne from $2,304.
-----Three-month lead fell to $2,175 a tonne from $2,190.
-----Three-month tin dropped to $23,800 a tonne from $24,125.
-----Three-month zinc climbed to $2,113 a tonne from $2,078.
-----Three-month nickel dipped to $19,459 a tonne from $19,975.
COCOA: Prices rebounded on expectations of a cocoa supply deficit this year. The International Cocoa Organisation said it expected a production deficit of 71,000 tonnes in the 2011-12 season after a surplus in 2010-11. By Friday on Liffe, London's futures exchange, cocoa for delivery in May rose to £1,510 a tonne from £1,506 a week earlier.
In New York on the NYBOT-ICE, cocoa for May gained to $2,381 a tonne from $2,353.
COFFEE: Robusta coffee prices retreated in London owing to ample supplies of the commodity, while gaining in New York on solid demand for Arabica beans. "Coffee prices eased, pressured by the expected record off-year crop in Brazil," said Barclays Capital analyst Kate Tang. London prices also gained due to Vietnam's large coffee exports.
By Friday on Liffe, Robusta for delivery in May fell to $2,013 a tonne from $2,035 a week earlier. On NYBOT-ICE, Arabica for May gained to 203.95 US cents a pound from 202.35 cents.
SUGAR: Sugar futures dropped in London on forecasts of a production surplus. By Friday on Liffe, the price of a tonne of white sugar for May decreased to $646 from $657.10 the previous week. On NYBOT-ICE, the price of unrefined sugar for delivery in May edged up to 24.85 US cents a pound from 24.84 cents a week earlier.
GRAINS AND SOYA: Maize and soya prices rose, while wheat dipped. By Friday on the Chicago Board of Trade, maize for delivery in March firmed to $6.53 a bushel from $6.40 a week earlier. Wheat for March decreased to $6.35 a bushel from $6.41. May-dated soyabean meal - used in animal feed - gained to $13.25 a bushel from $12.86.
RUBBER: Prices retreated this week.The Malaysian Rubber Board's benchmark SMR20 fell to 377.80 US cents a kilo from 380.45 cents the previous week.