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Sep 06, 2010
Oil Triggers Commodity Selloff As Recovery Hopes DimFeb 05, 2010
By Brian Baskin
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--A steep drop in oil futures triggered fresh losses across the commodities spectrum Friday, as investors nervous about the pace of the economic recovery gravitated back toward the dollar.
"People are buying the dollar," said Michael Gross, broker and futures analyst with OptionSellers.com. "Funds are liquidating everything else."
The week's wild swings in commodity prices underscore how investors aren't yet totally committed to betting that the world economy is on an upward track. Commodities rose steadily throughout last year in anticipation of strong growth in 2010; now, many investors fear that commodities pose too big a risk amid the uncertain outlook.
In the meantime, markets are in flux--shooting higher on Monday and Tuesday on a few positive economic indicators, and crashing on Thursday and Friday when the news turned sour.
"Volatility now is here to stay, it's something we're going to have to learn to live with," said Rick Mueller, director of oil markets at Energy Security Analysis Inc., a consultancy in Wakefield, Mass.
The rush to the exits Friday began when oil prices dipped below $72.43 a barrel, the 2010 low. Futures had managed to bounce back from around that price three times in the last week, including during Thursday's steep slide. But support crumbled amid concerns about weak oil demand in what is shaping up to be a slow economic recovery.
The breach triggered numerous sell stops, automatic orders to exit trading positions that many investors set up around major price milestones. Within minutes, oil prices had tumbled to $69.50 a barrel, the lowest price seen since Dec. 15.
March futures mounted a partial recovery, settling 2.7% lower at $71.19 a barrel on the New York Mercantile Exchange. Crude is down 14% since hitting its closing high for the year of $83.18 on Jan. 6.
Oil's free-fall acted as a cue for other commodities to follow suit. Copper sank to its lowest settlement since October, with the most actively traded March contract ending 0.8% lower at $2.8575 a pound. Gold, too, followed oil lower, with the most active April contract settling 1% lower at $1,052.80 an ounce. ICE March sugar settled 5.3% at 26.17 cents a pound.
The dollar was the clear beneficiary, moving to a new eight-month high against the euro at $1.3586, from $1.3660 before oil's plunge. A strong dollar tends to have a negative impact on dollar denominated commodities.
"A lot of people piled in (the oil market) at the beginning of the year, and at the beginning of this week," when investors held a more optimistic economic outlook, said Andy Lebow, senior vice president for energy with MF Global in New York. "There's a sense of uneasiness about ... how robust the recovery's going to be."
The main concern driving trading this week was that tentative signs of economic growth will evaporate if governments begin to dial back stimulus measures. In Europe, investors fear that Greece, Spain and Portugal will need to enact deep spending cuts and other punishing fiscal measures to bring debts under control. The U.S. is grappling with its own deficits, making a repeat of last year's stimulus spending unlikely, while China began restricting lending last month in order to prevent high inflation.
-By Brian Baskin, Dow Jones Newswires; 212-416-2453; brian.baskin@dowjones.com [back] |
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