Crude oil rallies, palladium hits 3-year peak

Global oil prices rallied this week on strong US crude demand and Ukraine tensions, while star performer palladium hit a three-year peak on supply fears in South Africa and Russia. Base or industrial metals meanwhile swung higher on bright manufacturing data in leading consumer China. OIL: Crude futures jumped Wednesday to multi-month peaks as traders reacted to tumbling crude reserves in the United States. New York crude struck a one-month peak at $104.07 per barrel, while Brent forged a two-and-a-half-month high at $110.55. The US Department of Energy revealed American crude oil inventories plunged 7.2 million barrels in the week to May 16. That shocked traders expecting a weekly gain of 700,000 barrels, after having seen stockpiles steadily mount for months, and signalled keen demand in the world's biggest crude consumer. The market was also driven by lingering concerns over tensions in Ukraine and Libya, and impressive economic growth in Germany. "Brent crude oil contracts have sustained levels of around $110 per barrel, supported by supply disruption fears due to the continued violence in Libya and Ukraine," said Inenco oil analyst Chloe Bradley. Russian President Vladimir Putin pledged Friday to respect the outcome of Ukraine's presidential election this weekend, but warned that the country had descended into all-out civil war after a bloody upsurge in separatist violence. At least seven people were killed in fighting between rebels and defence forces outside the eastern industrial hub of Donetsk on Friday, a day after the deaths of 18 soldiers in the heaviest loss for the Ukraine military since the conflict began. In Libya, a renegade general's bid to rid the country of Islamists has also alarmed oil investors fearing a further crippling of the embattled North African state's output, which has been stunted until recently due to blockades by rebels. Further support came from official data showing that the German economy powered ahead with 0.8-percent growth in the first quarter of 2014. That was the biggest quarterly jump for three years. By Friday on London's Intercontinental Exchange, Brent North Sea crude for delivery in July rose to $110.39 per barrel from $109.55 a week earlier. On the New York Mercantile Exchange, West Texas Intermediate or light sweet crude for July jumped to $104.39 a barrel compared with $101.83 a week earlier for the June contract. - Palladium forges 2011 peak - PRECIOUS METALS: Palladium hit a three-year peak and platinum touched an eight-month high on mounting supply worries, with South Africa plagued by strikes. Palladium jumped to $829.40 per ounce, the highest level since August 2011, while sister metal platinum jumped to $1,496.88 an ounce. "Unlike gold and silver, these metals have been rising strongly in recent months due to growing worries over supply shortages in the world's top producers," said Forex.com analyst Fawad Razaqzada. "These fears have been stoked by ongoing strikes in South Africa, and after Russia was hit with sanctions from the European Union and the US because of the situation in Ukraine." Since January, three of the largest producers in the world have suffered a hobbling strike on South Africa's restive platinum belt, north of Johannesburg. South Africa accounts for 80 percent of the world's platinum supply and nearly a third of the world's palladium. Razaqzada added that physical demand for both metals was also forecast to climb as the global economic recovery boosts demand for cars. Motor manufacturers use palladium and platinum in catalytic converters. Meanwhile, the World Gold Council said Tuesday that global gold demand steadied at 1,074 tonnes in the first quarter of 2014, despite weaker Asian demand. That was down from 1,077 tonnes a year earlier. Separately on Friday, Britain's Financial Conduct Authority watchdog fined Barclays more than £26 million over the bank's failings in relation to the fixing of the price of gold over a nine-year period to 2013. By Friday on the London Bullion Market, the price of gold was unchanged at $1,291.50 an ounce from Friday of the previous week. Silver increased to $19.42 an ounce from $19.33. On the London Platinum and Palladium Market, platinum rose to $1,483 an ounce from $1,464. Palladium advanced to $828 an ounce from $816. BASE METALS: Base or industrial metals rose with copper hitting $6,954 per tonne -- the highest level since early March -- on the back of bright Chinese data. An index of Chinese manufacturing activity saw a sharp improvement in May, hitting a five-month high, HSBC said Tuesday, but still showed contraction. The British banking giant said in a statement its preliminary purchasing managers' index (PMI), which tracks activity in the nation's factories and workshops, came in at 49.7 this month, well up from a final reading of 48.1 in April. But while the figure is the best since December's 50.5, it was still below the 50-point break-even level suggesting the sector is still contracting. "Although it thus remains below the level that marks the line between downturn and upswing, it has improved nonetheless, no doubt primarily on the back of foreign demand for Chinese goods," said Commerzbank analysts. "Metal demand in China likewise remains robust: in April, Chinese imports of refined copper and copper concentrate surged by 86.5 percent and 18.7 percent year-on-year." They added that China has imported a total of 1.34 million tonnes of refined copper since the beginning of 2014, which was 56 percent up on the previous year. By Friday on the London Metal Exchange, copper for delivery in three months advanced to $6,924.75 per tonne from $6,891 a week earlier. Three-month aluminium rose to $1,820 a tonne from $1,777.75. Three-month lead gained to $2,153.50 a tonne from $2,118.25. Three-month tin increased to $23,259 a tonne from $23,300. Three-month nickel climbed to $19,622 a tonne from $19,125. Three-month zinc rose to $2,097.25 a tonne from $2,062.25. - Soft commodities diverge - SUGAR: Prices pulled lower on speculative selling after gains the previous week. By Friday on LIFFE, London's futures exchange, the price of a tonne of white sugar for delivery in August sank to $468.70 from $492.70 a week earlier. On ICE Futures US, the price of unrefined sugar for July decreased to 17.28 US cents a pound from 18.17 US cents. COFFEE: The coffee market was weighed down by abundant supplies. "Even if the market does move into deficit this year, stocks are high after years of overproduction, so there should be no shortage of beans," said Capital Economics analyst Caroline Bain. "We therefore expect prices to fall over the year," she added. By Friday on the ICE Futures US exchange, Arabica for delivery in July dipped to 181.35 US cents per pound from 194.10 cents a week earlier. On LIFFE, Robusta for July reversed to $2,007 a tonne from $2,107. COCOA: Prices rose further on expectations that supply would struggle to meet demand. "Many analysts expect the market to work higher longer term due to projections of short production against demand over the long term," added Price Futures Group analyst Jake Scoville. By Friday on LIFFE, cocoa for delivery in July increased to £1,878 a tonne from £1,817 a week earlier. On ICE Futures US, cocoa for July rose to $2,991 a tonne from $2,901. RUBBER: Prices in Kuala Lumpur climbed on the back of tight global supplies. The Malaysian Rubber Board's benchmark SMR20 inched up to 171.80 US cents a kilo from 170.35 cents a week earlier.