Oil prices consolidated around the $100 level on Tuesday but gold, base metals and agricultural commodities staged a recovery after last week’s sell-off.

With the end of the first quarter nearing, dealers warned that further volatility was likely if hedge funds continued to close leveraged positions across various asset classes.

Last week’s sell-off has prompted intense debate about the outlook for commodities.

“The investment theses surrounding commodities look poised to be tested very meaningfully,” said Tobias Levkovich, chief US equity strategist at Citigroup: “The investment community might be in the process of recognising some disquieting factors about commodities focused portfolios that may have been overlooked as momentum-driven strategies have dominated.”

T Boone Pickens, founder of the BP Capital hedge fund, said he expected oil prices to stay above the $100 level in the second half of the year because of strong fundamentals. Speaking on CNBC television, the legendary oil investor admitted he made a mistake when his fund bet on oil prices falling at the start of this year.

In energy markets, Nymex May West Texas Intermediate dipped 6 cents to $100.80 a barrel while ICE May Brent added 40 cents to $100.26 a barrel.

Wednesday brings the latest US weekly inventories data with crude stocks forecast to increase for a third week in a row with a rise of 0.7m barrels, according to a preliminary poll of analysts by Reuters. Further evidence of growing weakness in US demand could prove critical for sentiment.

Distillate stocks (including heating oil) were forecast to fall 1.6m barrels while gasoline stocks were expected to decline by 0.9m barrels.

Nymex April heating oil traded just under a cent higher at $2.6516 while Nymex April RBOB unleaded gasoline slipped 4.4 cents to $2.9188 a gallon.

Gold rallied 1.4 per cent to $933.40 a troy ounce, helped by renewed dollar weakness after disappointing US consumer confidence data.

Platinum rose 4.3 per cent to $1,960 a troy ounce. John Reade of UBS said the recent sell-off presented a buying opportunity after noting extremely strong European demand from high-end jewellery companies who bought unprecedented amounts of platinum during the recent pull-back.

The power problems in South Africa that have affected platinum production will also have a significant impact on aluminium output. BHP Billiton is to close a significant portion of its aluminium smelting capacity in South Africa, losing about 120,000 tonnes a year of production.

Base metals staged a broad recovery with aluminium up 2.2 per cent to $2,905 a tonne while copper added 3 per cent at $8,075 a tonne.

Codelco Norte, the biggest division of Codelco, the world’s largest copper producer, expects output this year to fall by 6.3 per cent to 840,000 tonnes, due to lower ore grades. Codelco produced a total of 1.665m tonnes of copper last year and its chief executive said prices for the red metal would remain high due to continued strong demand from China.

“We’re experiencing some volatility, but we expect the (copper) price to stay high, although not as much as in the first months (of the year),” said Jose Pablo Arellano, chief executive of Codelco, the state owned producer.

Lead added 1.5 per cent at $2,755 a tonne while zinc gained 2.6 per cent at $2,330 a tonne and nickel rose 3.5 per cent at $29,550 a tonne.

China’s nickel output is expected to rise 17 per cent to 250,000 tonnes this year, mainly as a response by key producers to strong demand from the stainless steel industry, according to Antaike, the state-run metals information provider.

In Chicago, agricultural commodities also rose with CBOT May corn up 20 cents to $5.44¾ a bushel while CBOT May wheat gained 50 cents at $10.70 a bushel and CBOT May soyabeans increased 50 cents to $13.07 a bushel.

Next Monday brings a crucial update from the government on US farmers’ planting intentions for this year, with further volatile trading and speculative selling widely expected this week.

Current market expectations suggest land devoted to US corn will decline by roughly 6.1m acres to 87.5m acres while soyabean acreage is expected to increase by 7.7m acres to 71.3m acres.

These are early estimates which could change dramatically, particularly on wether conditions close to planting time.

“US production of corn and soybeans in the near term is inadequate to meet growing ethanol and export demand, and as such prices will need to move considerably higher to ration demand,” said Hussein Allidina of Morgan Stanley.

CME Group, the world’s largest derivatives exchange, is to increase daily price trading limits for corn, soyabeans and soyabean oil from March 28 following approval from US regulators.

“Price levels and volatility for these grains and oilseeds have increased significantly in recent years,” said Robert Ray, managing director at CME: “Expanding price limits will allow market participants to continue to utilize the contracts for price discovery and risk mitigation at levels more aligned with today’s market environment.”

Corn price limits will be increased to 30 cents from 20 cents a bushel, soyabeans to 70 cents from 50 cents a bushel and soyabean oil to 2½ cents a pound from 2 cents a pound.

In addition, daily price limits for wheat, corn, soyabeans, soyabean meal, soyabean oil, oats and rough rice futures can rise twice, by approximately 50 per cent each time, when market conditions dictate that an expansion is warranted

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