Seven-month low for crude but gold rises
By Chris Flood
Published: September 16 2008 03:00 | Last updated: September 16 2008 03:00
Commodities prices plunged yesterday as dealers reduced risk amid the turmoil on Wall Street after Lehman Brothers filed for bankruptcy protection.
Gold , a traditional haven in times of market turbulence, rose 1.5 per cent to $775 a troy ounce after touching a high of $784.90.
John Reade, commodity strategist at UBS, said the next few days would be dominated by risk reduction. “Fundamentals in the gold market will mean very little for the next few days as traders struggle to adjust to the fallout from the weekend and trade out of positions accordingly.”
Commodity dealers said Lehman had a relatively small presence in base and precious metals markets but was a significant player in the oil, natural gas and power markets.
Regulators on commodity exchanges took steps to limit the disruption to trading after the news about Lehman. . The Commodity Futures Trading Commission, the US regulator, said it was “closely monitoring” markets.
Walter Lukken, acting CFTC chairman, said in a statement on Sunday that the regulator was taking “steps to maintain the stability and orderliness of the commodity futures and options markets”.
The London Metal Exchange yesterday suspended Lehman Brothers from dealing on the LME’s electronic Select trading system, which is anonymous, although it was allowed to continue telephone business.
ICE Futures Europe, where Brent crude oil is traded, said in a circular to its members that “the exchange has suspended all access to its facilities by Lehman”. Atlanta-based ICE, where West Texas Intermediate oil is traded, also suspended the bank.
Bankers said trades in which Lehman acted as the counterparty were being unwound but warned that some of Lehman’s corporate clients might be left without their hedges.
Bank of America’s takeover of Merrill Lynch should provide it with an opportunity to become a leading participant in commodity markets.
Traders said Merrill’s global oil business and well-established gas and power trading operations would significantly boost BofA’s presence in commodity markets, which had previously been limited to derivatives trading. Crude oil prices fell to a seven-month low in spite of hurricane Ike causing widespread disruption to US refining operations and an upswing in violence in Nigeria over the weekend.
Nigerian militants declared an “oil war” on Sunday and fighting continued for a third successive day with an attack on a Royal Dutch Shell installation.
Nymex October West Texas Intermediate sank $5.47 to settle at $95.71 a barrel after touching $94.13.
ICE October Brent fell $5.20 to close at $92.38 after sinking to $91.17 a barrel.
Traders said deleveraging by financial investors was overwhelming oil fundamentals. Hurricane Ike missed oil and gas facilities in the Gulf of Mexico. Most of the refineries in Texas that closed down operations last week as a precaution were reported to have escaped damage.
However, restarting refinery operations could be delayed by power supply shortages and ongoing threats from flooding.
Nymex opened for electronic trading in a special session on Sunday to deal with problems caused by Ike but did not publish a settlement price.
Copyright The Financial Times Limited 2008