Crude oil held above the $80 a barrel level on Tuesday but base metals moved lower and sugar prices registered further declines as the stronger dollar put pressure on commodity markets.
In energy markets, Nymex April West Texas Intermediate fell $1.25 to $80.62 a barrel, while ICE April Brent lost $1.30 to $79.17 a barrel.
Analysts at the Centre for Global Energy Studies cautioned that crude oil prices above the $80 a barrel mark were “not sustainable” as evidence of an improvement in the market’s fundamentals was “still hard to come by”.
The CGES noted that data on tanker shipments from mid-February onwards suggested that Asian buyers could be trimming their crude imports while refineries in the developed world were entering a maintenance period.
The CGES said that although lower demand from refineries ought to push up profit margins for producing products such as diesel, it could also limit demand for crude and lead to a renewed rise in inventories.
Ronald-Peter Stöferle at Erste Bank said the downward risks for oil prices at current levels clearly outweighed the potential for further gains.
Erste said it expected crude oil to retreat to around $60 by the end of the year as weak demand in the developed world and overly ambitious expectations for economic recovery became more apparent.
“We think that any further price increase will ultimately be built on shaky grounds and will thus not be sustainable,” said Mr Stöferle: “The risk/return profile is currently not attractive for oil investments.”
Erste noted that Opec has signalled that it regarded a price band of $70-$80 a barrel as optimal and the cartel was unlikely to abandon that view.
Mr Stöferle cautioned that an “unshakable trust in the alleged Chinese economic miracle” was responsible for fuelling hopes for further gains in oil prices.
Sugar prices came under renewed pressure as traders anticipated improvements in this season’s output in Brazil and India, the world’s largest producers.
ICE May raw sugar fell 4.4 per cent to 20.61 cents a pound, while Liffe May white sugar dropped 4.3 per cent to $564.2 a tonne.
Among the base metals, copper fell 1.4 per cent to $7,410 a tonne. Copper prices in Shanghai are currently trading below copper prices in London and Chinese buying interest has been limited since traders returned after the lunar new year holiday.
Some traders think Chinese consumers might be waiting for copper prices to pull back towards $7,000 a tonne level before stepping up their buying again.
Leon Westgate at Standard Bank said the current lack of Chinese buying activity was “interesting rather than perturbing”.
Standard Bank said that with China’s government targeting economic growth of 8 per cent this year, the country undoubtedly needed fresh supplies of base metals and buyers would have to return to the market at some point.
“If prices continue to shake off the lack of Chinese activity and stabilise at current levels, then Chinese buyers may bite the bullet and re-enter the market,” said Mr Westgate: “If that is the case, then copper prices may be set for another run higher.”
Gold sank towards the $1,100 level, trading at $1,109 after ending Monday’s session in New York at $1,122.
