Commodities | Jun 12 2008
By Chris Shaw
Oil prices rose overnight but trading in recent sessions has become
quite choppy in a trend ANZ Banking Group senior commodity strategist
Mark Pervan expects will continue, particularly as the weekly numbers
from the US Department of Energy gave mixed signals as to the market’s
outlook.
Shorter-term Pervan suggests much will depend on the direction of the
US dollar, as if the currency were to strengthen he sees scope for some
profit taking in the oil market given the early indications are for a
weak driving season in the US and as there are no signs yet of any
hurricane activity in the Gulf of Mexico.
Over the next few months Pervan expects prices will continue to ease
given weaker demand from the US and potentially from the rest
of the world, though with Chinese demand likely to remain strong he
suggests the downside is somewhat limited.
Gold may find the going tougher given potential for profit taking in
the oil market and a stronger US dollar, which Pervan notes is gaining
support from increased expectations interest rates in the US will move
up as inflation increasingly becomes an issue.
Medium-term the outlook for gold is similar to that of oil in Pervan’s
view as he expects the price of the metal will drift lower in coming
months as the US dollar finds a bottom and as any signs of stability in
equity markets reduce gold’s attraction as a safe haven.
If prices become less volatile he expects trade buying of the metal
will also increase, which in conjunction with modest central bank sales
should act to limit the extent of any falls.
The recent strength in oil prices has weighed on demand for base metals
and with continued signs Chinese demand is slowing Pervan sees scope
for further falls in the short-term, especially if traders using base
metals as a US dollar hedge get spooked by the prospect of intervention
designed to lift the greenback.
Pervan expects prices across the sector to be choppy in coming months
with nickel the best bet given LME supplies of the metal have fallen
over the past three weeks and with scope for the disruption to gas
supplies in Western Australia to further limit output. As well, he
suggests aluminium could gain if oil prices remain elevated.
Coal prices may see some profit taking if oil falls in coming sessions,
while Pervan also notes a return to normal operating conditions at the
Newcastle port may act as a trigger for traders to take some money off
the table.
With oil tipped to fall in coming months Pervan sees coal prices also
easing, though again he doesn’t expect prices will fall
significantly as infrastructure constraints in Australia in particular
will contain any downside by limiting supply at a time when
Asian demand remains strong.
While not expected upside to coal prices in coming months is a
possibility given the combination of switching from higher quality
thermal coal into higher priced semi-soft coal and slowing export
volumes from both South Africa and Vietman.