Crude oil surged more than 1% toward $75 a barrel, boosted by a weak dollar and optimism about a global economic rebound that will lead to higher energy demand. Gold also hit a record as the dollar slumped to its lowest in more than a year against a basket of currencies, making dollar-denominated commodities like oil and bullion more affordable for holders of other currencies. Oil has more than doubled from below $33 in December amid hopes of economic recovery, a rally many say has run ahead of weak oil demand, high inventories and abundant supply. The recent rise in oil prices is not driven by fundamentals but by financial market developments and hopes that oil demand will recover sooner rather than later. Producer group OPEC became the latest forecaster to bump up global oil demand estimates for this year and 2010.
International Energy Agency is concerned about the rapid rise in oil prices, highlighting risks that a sharp increase could hurt the economic recovery. Crude oil futures surged to a 2009 high above $75 a barrel, boosted by optimism about a global economic rebound. The rapid hike of the price is certainly a concern, according to EIA on the sidelines of the IEA's ministerial meeting, without expanding on the organization’s concern. The IEA, which advises 28 industrialized economies, said in a monthly report that it had increased its global oil demand growth estimate for 2010 to 1.42 million barrels per day, up 150,000 bpd from its previous projection. Moreover oil producer group OPEC also raised its forecasts for world demand, predicting an average 28.39 million bpd next year, up 300,000 bpd from its previous forecast. Spiking prices in oil and gas are very counter productive because they can set off recessions.
Dollar slid to a 14-month low against a basket of currencies and the euro, as solid earnings by JPMorgan Chase and rising stock and commodity prices stoked optimism for an improving global economy. On the back of a solid start to the earnings season and strong trade and loan growth releases from China, investors are widely seeking risk. Low rates reduce the attractiveness of U.S. assets and ease demand for the dollars to buy them. Low U.S. rates also promote the use of the dollar as a funding currency in the carry trade, where investors borrow in one currency, which they then sell to buy higher yielding assets in another currency.
Copper headed higher, buoyed by a 14-month low in the dollar against the euro and surprisingly strong import data from China, the world's top copper consumer. Improved demand outlook drives early copper rally after stronger-than-expected 23% jump in Chinese imports of unwrought and semi finished copper products in September. Better than expected September retail sales data adds to the upbeat sentiment. On the supply side, early contract settlement at the world's largest copper mine, Escondida in Chile, seen possibly behind labor issues at other mines unable to match Escondida's pay rise and bonuses.
