Early this week, crude oil futures fell more than $1 a barrel after reports showed U.S. inventory levels would meet elevated heating demand ahead of a cold front.
In addition, the Saudi ambassador to the U.S. stated that current oil prices were fine, sparking concerns that OPEC would withhold from further cuts to output. The news pressured nearby March crude oil to $54.01 a barrel on Monday.
The next day, March crude oil rallied more than $3 in the day and settled up at $56.97. Traders affixed the surge to OPEC's claim that it would follow through on cutting 158,000 barrels a day starting Thursday. Traders typically regard OPEC statements with some reserve, as constraints aimed at curtailing a price collapse have not always been filled.
Yet this time, a well-known newspaper quoted a senior Saudi oil official as stating that in addition to the reduction commenced in November, more cutbacks would take place and ensure price stability. The reports, combined with the arrival of colder temperatures, pushed March crude oil up to $58.14, with some downside pressure stemming from a bearish inventory report (crude oil stocks were 28.6 mb above average).
Crude oil futures fell at the NYMEX opening on Thursday, with longs liquidating after yesterday's sharp rally. Yet prices looked set to rebound amid continued forecasts for colder weather.
Wheat: March wheat futures slid 7 cents on Monday to $4.56 a bushel, with bearish technicals and a sell-off in the corn market working the downtrend. A low-end tally of wheat export inspections also contributed to the bearish tone, as Department of Agriculture reported 16.7 million bushels of wheat exports versus forecasts calling for between 16 and 22 million.
Traders commented that gains in corn could spark bullish wheat movements, and wheat futures advanced the next day on the tail of rising corn and energy prices. March wheat futures ended the session slightly higher at $4.59.
Despite a softening in the corn market Wednesday, March wheat futures closed 8 cents stronger at $4.67. The gains alluded to technically-inspired buying, further gains in the energy market and end-of-the-month position-squaring, traders said.
Wheat futures were projected to keep rising as freezing Midwest temperatures had the potential to damage dormant crops that lacked a protective layer of snow, thereby depleting the 2007 crop output. March wheat rose to a high of $4.72 on Thursday, placing prices firmly above the $4.60 level.
Copper: March copper futures fell 10 cents on Monday to close at $2.54 per pound. The decline came as a surprise to traders, as prevailing bullish fundamentals included talk of heightened Chinese demand. In addition, U.S. reports showed strong home sales and durable goods numbers, which would usually bolster demand for copper in various industrial sectors.
Traders noted that surges in LME copper inventories, together with an overall softening in the base metals markets, had eroded upside momentum. March copped rose 2 cents on Tuesday, yet a negative tone was still shielding the red metal from bigger gains.
On the floor, traders were said to be eyeing the $2.40 level, where longs could jump in ahead of spring construction-building season. Copper futures climbed to $2.59 midweek after news of a Chilean mining issue helped buoy the market. Nevertheless, traders opined that copper prices would favor the downside once the strike had dissolved.
Walt Breitinger is vice president of commodities at A.G. Edwards and Sons. He can be reached at (219) 738-6460.
