Commodities prices fell across the board with the exception of precious metals as investors worried that global economic growth is slowing down.
The Reuters-Jefferies CRB index, a basket of commodities, fell 2.8 per cent by late afternoon in London, hitting 317 points, its lowest level since December, dragged down by a sharp drop in oil and copper prices.
The index has fallen 14.3 per cent since a peak set in April.
Natural resource stocks underperformed actual commodities prices by a large margin.
Household sector names including Xstrata, Glencore, ConocoPhillips and Archer Daniels Midland saw their shares fall between 4 and 8 per cent on the day, extending last week’s large drop.
Colin Fenton, head of commodities research at JPMorgan in New York, said that, in the near term, most commodity markets appeared “likely to convulse lower, as a growth scare dislodges physical inventories and impairs orders”.
But Jeff Currie, head of commodities research at Goldman Sachs in London, was somewhat more positive, telling clients that, although risk to the bank’s “constructive commodity views” had risen, he maintained an “overweight” recommendation on commodities relative to other asset classes.
Among major commodities, oil led the correction as investors bet that an economic slowdown would cut demand for the commodity just as Saudi Arabia ramps up its production.
In late afternoon trading in London, ICE September Brent fell nearly $7 to a session low of $102.70 a barrel, dropping below the crucial 200-day moving average. It was later down $6.17 at $103.20.
The breakdown of the technical level suggest that prices could fall lower as speculators sell. Nymex September West Texas Intermediate fell $6.01 to $80.87 a barrel.
But some analysts believe that the sell-off in oil markets could peter out soon.
While the oil market has been affected by the “risk-on, risk-off” trend in the markets, the overall fundamentals in supply and demand have not changed, said Harry Tchilinguirian, head of commodity market strategy at BNP Paribas.
While the fall in appetite for risk has hit the oil price, “the overall picture which pushed oil above $100 hasn’t changed,” he said. “On a risk-reward basis, going long WTI at around $83 to $84 is very attractive,” Mr Tchilinguirian said.
Adam Sieminski, chief energy economist at Deutsche Bank, agreed, saying he had yet to revise his price targets for oil prices.
While financial markets were responding to the S&P downgrade of US debt, last week’s US employment figures painted a more positive picture of the country’s economic situation, he said.
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