Oil prices reached record highs on Tuesday as the US push for diplomatic action over Iran’s nuclear enrichment programme intensified concerns over possible disruptions to crude supplies.
IPE Brent for June delivery hit a record $72.20 a barrel before easing back to trade 23 cents higher at $71.69 a barrel. Nymex May West Texas Intermediate rose 20 cents to $70.60 a barrel after it broke through the post-hurricane Katrina high to reach a record $70.88 earlier in the session.
The May WTI contract will expire on Thursday. Futures are pointing to further price increases for crude. The June WTI contract rose to a high of $72.50, while the September 2006 WTI contract hit $74.06 a barrel.
Organisation of the Petroleum Exporting Countries ministers are due to meet later this week at Doha, but with most members already producing oil at full capacity, the cartel’s room for manoeuvre is limited.
“Opec’s attempt to micro-manage oil prices is succeeding only in tying the cartel and the market in knots,” said John Kemp of Sempra Metals. “If Opec is serious about trying to restrain price increases, it must stop ratcheting up its price target and accept the likelihood that prices will need to experience a period of sharp declines before the cartel can step in again to rebalance the market. For the time being the cartel is scared by this logic and happy to reap windfall revenues so prices will continue to march higher.”
The US shift towards ethanol-based gasoline is helping sugar, with the Nybot May contract rising 3.6 per cent to $17.51 a pound.
Traders said the reaction in gold and the US bond market suggested increased nervousness about the impact of high energy prices on inflation.
Gold firmed 0.7 per cent to $617.70 a troy ounce after it reached $619.10 earlier in the session, a fresh 25-year high.
“If the Iran matter gets very serious and oil persistently trades above $70, this is good news for precious metals but bad news for global economies and for base metals,” said Jon Bergtheil of JPMorgan.
Silver rose 1.1 per cent to $13.56 a troy ounce, while platinum edged 0.3 per cent higher to a record $1,104 a troy ounce.
On Monday, Eastman Kodak announced film prices increases due to higher silver and petrochemical costs, following a similar move from its main competitor, AGFA, in February.
Copper rose 5.1 per cent to $6,450 a tonne after hitting a record $6,490 a tonne earlier in the session. A fresh round of fund buying drove copper higher amid concerns over the fragility of supplies approaching the busiest period for demand in the second quarter.
Copper and zinc producer Grupo Mexico has indicated that it may have difficulty meeting copper deliveries scheduled for May if strike action at its La Caridad facility continues.
Codelco, the world’s biggest copper producer, denied reports by local media that output at its Codelco Norte concentrator had been disrupted as a result of strike action. Traders noted that labour contracts are scheduled for renewal later this year at the company’s other divisions and with copper prices at record levels, the possibility of strike action remains.
The latest Commodity Futures Trading Commission report showed the speculative net long position on Comex rose 8,300 tonnes to 38,200 tonnes.
“Overall, the speculative net long (on Comex) remains very modest and significantly lower compared to levels seen in 2005,” said John Reade of UBS: “The strong rally in copper prices has more to do with speculative buying on the LME and OTC markets where detailed open interest data is not available.”
Zinc hit a record at $3,170 but eased back to trade 3.8 per cent higher at $3,120 after Grupo Mexico declared force majeure on refined zinc deliveries. This sparked a round of short-covering on concerns over physical supplies.
A serious electrical fault at its refinery in San Luis Potosi where workers are also on strike means full production is unlikely to resume before August.
