Stronger USD Weighs On Commodities

By Glenn Dyer | More Articles by Glenn Dyer

Outside of iron ore and perhaps nickel, commodity prices face another uncertain week after last week’s global consensus of a slowing pace of activity means no interest rate rises anytime soon, and in some countries – such as India, Australia, and the EU and UK, a possible easing in the months ahead.

A stronger US dollar is also adding to downward pressures on commodity prices – but not in iron ore.

Oil was hit, even though the US benchmark March West Texas Intermediate crude oil rose 8 cents, or 0.2%, to settle at $US52.72 a barrel in New York on Friday.

Prices finished 4.6% lower for the week, the largest weekly loss since the week ended December 21 – when they started their turnaround which has now been halted.

In Europe, the global crude pricing benchmark, April Brent futures added 47 cents, or 0.8%, to settle at $US 62.10 a barrel. It was down 1% for the week.

On Friday, data from Baker Hughes reported a weekly rise of 7 in the number of active US rigs drilling for oil— that was only half the size of the previous week’s fall of 14 and the total number of rigs actively looking for oil in the US is now down more than 20 in the past month.

Baker Hughe on said the number of active rigs drilling for oil rose to 854 last week. The total active US rig count also edged up by 4 to 1,049 (it includes gas rigs).

The weekly drop was fueled by Thursday’s sharp falls, which came amid worries about energy demand, a stronger dollar that makes US dollar-priced commodities less attractive, and reports that Libya could soon increase production.

China-U.S. trade uncertainty and the global change in economic policy emphasis to possible rate cuts (certainly no more rises) indicates the outlook is for a softening in consumption and demand for oil (but not gas).

Meanwhile, Comex gold prices finished higher on Friday, trimming an already small weekly loss as weakness in global stocks boosted demand for the commodity.

The yellow metal saw some short covering to end the week, finding support from the threat of another US government shutdown, with temporary funding expiring on this Friday, February 15 and intensifying concerns surrounding Brexit.

President Trump will not get the funding for his wall on the Mexican border, so will he start another shutdown or declare a national emergency?

Markets in China reopen today and will add significant demand to commodities such as gold, oil, iron ore, copper, nickel and gains.

April gold on Comex rose $US4.30, or 0.3%, to settle at $US1,318.50 an ounce, leaving it down 0.3% for the week. Gold has climbed by 2.9% this year.

March silver added 9.6 cents, or 0.6%, to $US15.809 an ounce with prices down 0.8% for the week.

In other metals trade, April platinum was up 0.7% to settle at $US802.50 an ounce — but down 2.9%. March palladium rose 1% to $US1,371.20 an ounce — another record settlement and a weekly gain of 4.4% (and well above gold).

Comex March copper fell 0.6% to $US2.811 a pound as the US dollar rose again on Friday and Chinese buying was absent.

It saw a weekly gain of 1.4%. In London, three month copper on the London Metal Exchange (LME) closed down 0.6% at $US6,210 a tonne on Friday but was still up around 1.2% last week after touching a two-month high of $US6,289.50 on Thursday.

LME Nickel, which had seen the biggest rally of any industrial metal in recent weeks because of the involvement of Vale (the dominant nickel miner) in an iron ore mine disaster in Brazil, finished down 3.2% at $US12,570 a tonne.

Traders fear Vale might be forced to stop mining at some of its nickel operations for safety checks like it is being forced to do with its iron ore mines in Brazil.

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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