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Crude oil prices jumped, with ICE Brent rising above the $114 mark, on anticipation of further tightening of supply and demand.
The November ICE Brent contract increased by $3 a barrel to $114.10 in afternoon European trading, while November Nymex West Texas Intermediate rallied by $2.45 a barrel to $86.70. The spread between the two contracts widened to $27.40.
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“Prices have been moving on a very tight physical market and uncertainty about the economy, and the physical side is winning,” said James Zhang, oil analyst at Standard Bank in London.
Lower European inventories are seen by analysts to be behind the recent rise of the Brent crude contract, especially that for immediate delivery.
On Wednesday, the International Energy Agency said European oil stocks had plunged to their lowest in almost nine years after a wave of supply disruptions.
Low inventories and supply disruptions have pushed higher the cost of Brent crude in the spot market. Although the difference between the Brent November and December contracts, which widened to as high as $3 this week, had narrowed to $2 on Friday, the margin between November 2011 and 2012 contracts widened to $10, beating the previous high of $6 in November 2007.
A light fall in Chinese inflation buoyed copper, with the metal for three month delivery on the London Metal Exchange rallying 2.7 per cent to $7,536 a tonne. Chinese consumer prices in September rose 6.1 per cent compared to 6.2 per cent the month before. This gave hope to some traders that the country’s monetary tightening was coming to an end, although food inflation remained at a high level of 13.4 per cent.
UBS, which has been bearish on commodities and miners since early this year, has turned more ”constructive” as it believes that the commodity carry traded funded by the dollar has started to be unwound.
“That unwind finally started with a vengeance – in September,” the investment bank said in its latest commodity price review. It said its commodity picks were thermal coal, iron ore and gold, while its least preferred commodities were aluminium and nickel.
Gold gained ground, rising 0.6 per cent to $1,675 a troy ounce. UBS said that while gold was sold off in the recent commodities markets downturn, “its trade liquidity and broad appeal remains high in these uncertain markets”.
