Crude retreats amid pressure for Mideast ceasefire

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Crude oil retreated on Monday amid mounting diplomatic pressure for a ceasefire in the fighting between Israel and Lebanon.

Condoleezza Rice, the US secretary of state, made an unannounced visit to Beruit and said she was there to seek a “sustainable” cease-fire. See Martin Indyk, US ambassador to Israel in the Clinton administration, on reaching a solution in Lebanon

Fears that the conflict could spread to other countries were eased after Syria’s deputy prime minister said his country was ready to engage in negotiations with the US.

Nymex September West Texas Intermediate declined 18 cents to $74.25 a barrel while ICE September Brent fell 2 cents to $73.73 a barrel.

Retail prices for US petrol hit a record last week, rising above last autumn’s post-Hurricane Katrina high. Nationwide pump prices for a gallon of petrol averaged $3.105 last week, a rise of almost 2 cents from two weeks ago, according to the latest Lundberg survey.

“Although there are some refinery capacity problems, demand is not growing and is probably shrinking with gas at more than $3 a gallon,” said Trilby Lundberg.

Valero Energy has started maintenance work on its 95,000 barrels a day refinery in Texas and ConocoPhilips is due to update this week on when production at its 306,000 barrels a day Wood River refinery in Illinois will be fully restored.

Nymex August unleaded gasoline traded less than a cent higher at $2.2950 a gallon.

On Monday, Spain cut its forecast for this year’s wheat crop to 5.6m tonnes from an earlier estimate of 6.2m tonnes. Fears that the heatwave across Europe will cause harvest shortfalls have pushed trading volumes for agricultural commodities to record highs recently.

Euronext.liffe said trading volumes for milling wheat futures reached a record 6,694 lots on Friday. French wheat futures, the benchmark for European wheat prices, traded at €126.5 a tonne yesterday after reaching a two-year high of €131.25 last week.

Trading volumes for rapeseed futures and options also reached record highs in July and August respectively.

European rapeseed traded at €256.50 a tonne yesterday after reaching a two-week high of €260 a tonne last week.

Market users point to a range of factors behind the recent record levels of trading activity. Global cereal inventories stand at relatively low levels at a time when heatwave conditions across Europe have raised fears that the hot weather will have an adverse effect on harvest yields. The removal of Common Agricultural Price subsidies combined with rising prices and increased volatility has encouraged traditional users of derivatives to expand their usage of futures and options to manage exposures.

Ian Dudden, director of commodity products at Euronext.liffe said: “market participants are recognising that futures and options rovide a viable mechanism to manage exposure to price volatility at a time when EU government price suports are being removed.”

The emerging market for biofuels has attracted new investors and changed the balance of supply and demand for grain and oilseed futures. Hedge funds and proprietary traders are known to be increasingly active in soft commodities, attracted by rising prices and the changes in the underlying duynamics of these markets.

Sudakshina Unnikrishnan of Barclays Capital said: “There is definitely a growing interest among the financial community in agricultural commodities, particularly those linked to ethanol such as sugar and corn. Price rises for agricultural commodities have lagged behind the appreciation in metals and across the energy complex and there has also been some switching as a result of the increased volatility in metals prices.”

Copper rose 1.9 per cent to $7,170 a tonne amid concerns that workers at Escondida, the world’s largest copper mine in Chile, could vote to strike later this week.

Nickel increased 2.2 per cent to $24,150 a tonne after London Metal Exchange stocks fell 270 tonnes to just 5,448 tonnes.

Dealers said trading volumes for base metals were thin, leading to choppy price action.

Aluminium rose 2 per cent to $2,510 a tonne while zinc increased 1.8 per cent to $3,125 a tonne after a fall of 225 tonnes in LME stocks, continuing a steady decline.

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