Oil prices volatile but base metals resilient

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Oil prices remained highly volatile Wednesday after a sharp fall late in the previous session, but base metals displayed resilience in spite of weakness across equity markets in response to concerns about the deterioration in the US subprime mortgage lending market.

The Organisation of the Petroleum Exporting Countries is due to start its next meeting in Vienna Thursday but as the cartel is not expected to cut output further, traders’ attention focused on the US inventories data released Wednesday.

The Energy Information Administration said US crude stocks rose 1.1m barrels last week, below the consensus forecast for an increase of 1.6m barrels.

ICE April Brent dipped 22 cents to $61.68 a barrel while Nymex April West Texas Intermediate fell 40 cents to $57.53.

Gasoline prices were marginally weaker with Nymex April RBOB trading just under a cent lower at $1.9223 a gallon after gasoline stocks fell 2.5m barrels, in line with the consensus forecast for a 2.4m barrel decrease.

The gasoline crack spread – the differential between gasoline and crude – has surged in the past month as unplanned refinery maintenance work has hampered production. Valero Energy shut its 100,000 barrel-a-day gasoline unit at its refinery in St Charles, Louisiana, for two weeks of unplanned maintenance, while Chevron has extended repair work on a fire-damaged San Francisco Bay area refinery for a further three weeks. The EIA said US refinery maintenance dropped 0.2 percentage points to 85.6 per cent last week.

The April gasoline RBOB crack traded at $23.22 Wednesday, having doubled in the past four weeks.

Nymex April heating oil edged 0.5 cents higher to $1.6956 a gallon after distillate stocks (including heating oil) fell 2.8m barrels, above the consensus forecast for a 2m barrel decrease.

Gold slipped 0.5 per cent to $640.00 a troy ounce. Dealers noted that speculative long positions – betting on further price appreciation – remained substantial, and said hedge funds were taking profits from gold to pay for losses elsewhere.

Base metals were largely unshaken as low inventories and fundamentals remained supportive approaching the seasonally strong part of the year for demand.

Copper eased 0.2 per cent to $6,205 a tonne after a fall of 1,975 tonnes in LME stocks. The International Copper Study Group (ICSG) is forecasting a 4.2 per cent increase in demand for refined copper this year to 17.884m tonnes while production is expected to rise 3.8 per cent to 18.059m tonnes, leaving the market close to balance.

Nickel rose 2.5 per cent to $44,700 a tonne after hitting another record at $44,800. Steelmakers are cutting back on buying nickel as the price continues to rocket. Nickel inventories remain critically low with just 2,418 tonnes avaliable to the market and there are fears that cyclone activity in western Australia could further disrupt global supplies.

Aluminium fell 0.4 per cent to $2,714.5 a tonne after a fall of 350 tonnes in LME stocks.

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