LONDON - Oil and gold prices fell sharply on Friday as commodity markets made a weak start to 2009 following their worst ever losses last year.
Industrial metals, however, bucked the trend with nickel soaring almost 16 percent on buying ahead of an annual rebalancing by major commodity indices.
Nickel was one of the worst performing commodities in 2008, effectively lowering its weighting in commodity indices, and the index funds are expected to buy the metal as they seek to restore the balance to normal levels.
U.S. light, sweet crude fell $2.82 or 6.3 percent to $41.78 a barrel by 1255 GMT, reversing part of Wednesday’s $5.57 a barrel gains. Oil tumbled 54 percent last year.
Demand for oil has wavered in Asia, with Chinese commercial fuel stocks rising to another record high in November, while Indian refinery production fell versus a year ago for the first time in three years.
The sharp jump in oil prices on Wednesday was, however, driven partly by bullish U.S. data which included smaller than expected rises in refined product inventories.
‘The recent crop of demand side indications for oil has been rather ambiguous. In itself, that is something of a change given a fairly long period during which the demand side numbers have been weakening fairly consistently,’ Barclays Capital wrote in a note to investors.
Sinking commodity markets last year dragged down the Reuters-Jefferies CRB index to a loss of more than 36 percent in its biggest ever annual decline.
The index tracks prices of futures across 19 mostly U.S. traded commodity markets.
Gold follows oil
Gold was dragged lower on Friday by the decline in oil and a strengthening dollar, but analysts said expectations of more grim economic data could spark safe-haven buying from investors.
Spot gold was quoted at $869.60/871.30 an ounce, down from $880.15 in New York late on Wednesday.
‘People are looking at oil and the dollar for guidance,’ said Wolfgang Wrzesniok-Rossbach, head of sales at precious metals group Heraeus. But physical demand for the metal was healthy as the New Year got underway, he added.
‘We are still seeing some interest from the retail side for investment bars,’ he added. ‘Since the crisis in the financial markets started, gold has really benefited from its role as a crisis metal, or a safe haven.’
Coffee and cocoa on ICE also fell after prices surged on Wednesday in the broad-based end-of-year rally.
March arabica coffee fell 1.45 cents or 1.3 percent to $1.1060 per lb. The contract jumped 4.50 cents on Wednesday.
The trend was more marked in cocoa with March off $105, or nearly 4 percent, at $2,560 a tonne. The contract rose $136, or more than 5 percent, on Wednesday.
Industrial metals, which suffered heavy losses in 2008 as economic gloom deepened, got off to a more promising start.
Nickel for three months delivery rose 15.8 percent to a peak of $13,550 a tonne, the highest price since Oct 30, while lead, tin and zinc also soared on fund buying.
‘The rebasing of the commodity indices will have some positive impact,’ David Wilson, head of base metals research at Societe General, said.
Copper, which slumped more than 50 percent in 2008, rose more modestly to $3,120 a tonne from $3,070 a tonne at the close on Wednesday.
