Oil slides on strong dollar, supply glut worries

Oil prices sank this week to one-month lows on the back of the strong dollar and global supply glut fears, ahead of the OPEC cartel output meeting next week.

The rising greenback makes dollar-denominated commodities more expensive for holders of other currencies. That tends to dent demand and prices.

Meanwhile the Organization of the Petroleum Exporting Countries (OPEC), which pumps about 30 percent of global crude, meets on June 5 for a production gathering in Vienna.

OIL: London Brent oil dived to a six-week low and New York crude to a four-week trough on Thursday, as the market was shaken once more by the rebounding dollar and stubborn jitters over the global supply glut.

"Brent and WTI futures have been set for a monthly decline as the strong dollar dominates the oil market," said Sucden analyst Myrto Sokou.

"Crude oil inventories have started to decline since mid-April 2015, suggesting a possible recovery of the US oil demand.

"However, the strong dollar seems to limit any strong gains in the oil market for the time being."

The US government's Department of Energy (DoE) revealed Thursday a healthy decline in crude oil and gasoline reserves -- but also a rise in output that could aggravate the global oversupply.

The report showed US commercial crude inventories fell 2.8 million barrels to 479.4 million in the week through May 22, while gasoline stockpiles fell 3.3 million barrels.

The DoE also reported a rise in US crude production last week, by 304,000 barrels per day to 9.57 million.

Dealers have been hoping a slowdown in US output, and increased demand during the summer driving season, could whittle down the huge global supplies that were a key reason for the collapse in prices between June 2014 and January this year.

Those losses deepened in November after OPEC refused to cut output despite a global glut.

Next week, the market focus switches back to OPEC, whose official oil output target stands at 30 million barrels per day.

Market expectations are that OPEC will maintain its output levels once again, due to satisfaction at oil prices that have recovered significantly since February.

By Friday on London's Intercontinental Exchange, Brent North Sea crude for delivery in July dropped to $64.35 a barrel compared with $65.57 a week earlier.

On the New York Mercantile Exchange, West Texas Intermediate (WTI) or light sweet crude for July fell to $58.52 a barrel from $59.60 a week earlier.

PRECIOUS METALS: Gold slid to a three-week low at $1,180.15 per ounce, taking a heavy knock from the rising greenback.

"Gold has been absolutely battered," said analyst Fawad Razaqzada at trading site Forex.com.
"The considerably stronger dollar is chiefly responsible for this latest slide in the price of gold and other buck-denominated commodities."

The dollar has risen following some positive US economic data and comments from Federal Reserve chief Janet Yellen last week that rates would go up "at some point this year".

By Friday on the London Bullion Market, the price of gold dipped to $1,191.40 an ounce from $1,204 the previous week.

Silver stood at $16.67 an ounce from $17.25.

On the London Platinum and Palladium Market, platinum fell to $1,115 an ounce from $1,143.

Palladium increased to $783 an ounce from $769.

BASE METALS: Base or industrial metals prices diverged this week, having fallen heavily this month on Chinese demand worries and abundant supplies, particularly of aluminium.

By Friday on the London Metal Exchange, copper for delivery in three months slid to $6,071.50 a tonne from $6,173 the previous week.

Three-month aluminium fell to $1,748 a tonne from $1,770.

Three-month lead increased to $1,972.50 a tonne from $1,954.

Three-month tin declined to $15,450 a tonne from $15,805.

Three-month nickel eased to $12,745 a tonne from $12,790.

Three-month zinc rose to $2,207 a tonne from $2,171.

COCOA: London prices jumped once again on supply fears in west Africa and Asia, hitting a new four-year peak at £2,131 per tonne.

"Ideas that dry and hot weather could hurt mid crop production in West Africa, and that El Nino could hurt Asian production, provided reasons to buy," said analyst Jack Scoville at Price Futures Group.

The El Nino weather phenomenon is an abnormal warming of surface ocean waters in the eastern Pacific, which occurs every two to seven years, and sparks drought in some areas and flooding in others.

By Friday on LIFFE, London's futures exchange, cocoa for delivery in July gained to £2,126 a tonne from £2,099 a week earlier.

On the ICE Futures US exchange, cocoa for July eased to $3,121 a tonne from $3,160.

SUGAR: The market tumbled to levels that were last seen six years ago, as traders fretted over the weaker currency of top producer Brazil.

"One of the reasons for the sharp fall in the price of sugar is the weak Brazilian real, which has depreciated significantly against the US dollar," said Commerzbank analysts.

"Brazilian producers have taken advantage of the real’s depreciation to sell more sugar.

"Another reason is that the global sugar market is still oversupplied and stocks are ample. This situation could be exacerbated if the El Nino weather phenomenon were to occur."

By Friday on LIFFE, a tonne of white sugar for delivery in August fell to $350.10 from $358.80 a week earlier.

On ICE Futures US, unrefined sugar for July inched down to 12.04 US cents a pound from 12.65 US cents.
COFFEE: Prices fell to their lowest levels so far this year on concerns that El Nino could send coffee production soaring in Brazil.

"The US weather service MDA last week raised the probability of El Nino occurring to 90 percent, an assessment that is backed up by the prevailing temperatures in the Pacific area at present," added Commerzbank analysts.

"El Nino means warmer and wetter weather in Brazil, which could have a positive impact on the next sugar cane and coffee crop."

On ICE Futures US, Arabica for delivery in July weakened to 126.20 US cents a pound from 129.45 cents the previous week.

On LIFFE, Robusta for July dipped to $1,633 a tonne from $1,679.

RUBBER: Prices continued to pick-up steam fuelled by demand from top consumer China and bad weather in key producer Thailand.

On Friday, the Malaysian Rubber Board's benchmark SMR20 rose to 162.90 US cents a kilo from 151.50 US cents a week ago.