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Oil price slump fuels fears of end to commodities price boom
By Perrine Faye
AFP
LONDON
Petroleumworld.com 09 13 06
The recent plunge in oil prices, which has also triggered falls for metals, is igniting concerns about a possible end soon to the five-year boom period for hard commodities as speculators exit markets.
In New York, the price of light sweet crude oil on Monday tumbled on easing supply concerns to a five-month low under 65 dollars per barrel, which was also more than 17 percent below an all-time high of 78.40 dollars struck in July.
The International Energy Agency said Tuesday that a hunger to consume oil products seems to be slowing after a seven-year binge.
Other commodities prices have slumped in oil's wake, with gold sliding nine percent in one week to under 600 dollars per ounce for the first time in two months. Copper, meanwhile, has shed 500 dollars per tonne, or eight percent of its traded price, since Thursday.
Silver, aluminium, coffee, sugar and soya futures have also suffered large downward corrections.
"The symptoms of a bubble are met now by commodities," JP Morgan analyst Nikolaos Panigirtzoglou said on Tuesday.
"We don't know whether it is at a peak or whether it can still run for another year or so. But we are probably close to the peak."
Panigirtzoglou added: "Definitely the price action of the past month is indicative that some investors are losing confidence on the ever-rising energy prices."
Meanwhile Morgan Stanley economist Stephen Roach said only a few day ago that the "mega-run" for commodities had run its course.
In May, he forecast a collapse in commodities prices this year, warning investors against strong optimism regarding China's appetite for raw materials.
"Play the commodity bubble in 2006 at your own peril. History tells us even the best things have an end," Roach had said earlier this year.
Most analysts estimate that an economic bubble for hard commodities began at the end of 2005 or start of 2006, when a clear move upwards in prices that had begun around February 2002 suddenly surged on speculative buying and not owing to the fundamental market factors of supply and demand.
Since the start of September, however, prices have tumbled on downward revisions to economic growth and in turn expectations of lower demand.
The International Monetary Fund warned on Tuesday that the global economy is at risk of a major setback because investors seem to ignore evidence that it has reached a turning point.
The risks include a US economic slowdown and falling house prices, it noted.
It added also that there could be another surge in oil prices, which however goes against the argument that the commodities' price bubble could soon burst.
Goldman Sachs economist James Gutman has himself not ruled out a rebound for commodities prices.
Recent price losses are nothing more than "cyclical fluctuations" he noted.
"We're certainly not at the end of the long-term bull market. If there are any near-term corrections, I'd view them as a buying opportunity," he said.
AFP 12 1659 GMT 09 06
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