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Commodities reports on 17 June 2007
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    "Commodities reports on 17 June 2007"

    Oil hits another peak despite talk of higher output

    By Chris Flood Published: June 17 2008 03:00

    Oil surged to a record of almost $140 a barrel yesterday as traders brushed aside reports that Saudi Arabia planned to increase production in order to cool down the market.

    But by the close Nymex July West Texas Intermediate had dipped 25 cents to settle at $134.61 a barrel after hitting a record $139.89. ICE August Brent reached a peak of $139.32 before easing back to trade 40 cents lower at $137.71 a barrel.

    Saudi Arabia is expected to announce a supply increase when oil ministers meet in Jeddah on Sunday.

    As the only member of Opec with meaningful spare production capacity, it is thought likely Saudi Arabia will increase output from the current level of 9.45m barrels a day to about 9.7m b/d, the highest level since 1981.

    Traders said the Saudi proposals would provide only a limited counterweight to the numerous supply problems facing the market. In the North Sea, a fire has closed StatoilHydro's 150,000 b/d Oseberg oil field while, in Nigeria, a strike against Chevron might still go ahead that could result in up to 350,000 b/d of production being lost.

    Dealers said Saudi Arabia's spare capacity buffer that responds to supply disruptions - from Nigeria, Venezuela, Iraq or Iran - would also be diminished by a production increase, potentially increasing the risk of a future price spike.

    Opec has repeatedly blamed speculators and weakness in the US dollar for driving oil prices higher.

    Data on speculative positioning from the Commodity Futures Trading Commission shows speculators reduced their bets on oil prices rising with the net long position down 10.8 per cent to 25,246 lots in the week ending June 10 when WTI reached $131.31.

    In petrol, the net long position fell by 17 per cent to 53,624 lots, its lowest for nine weeks. "While the [spot gasoline] price has steadily risen over the last three months, the outlook for this summer's US driving season is weighed down by weak consumer confidence, higher unemployment and average retail prices crossing $4 a gallon, not exactly supportive of rekindling buying interest," said Harry Tchilinguirian, senior oil analyst at BNP Paribas.

    Nymex July RBOB unleaded gasoline rose 2.6 cents to $3.4887 a gallon.

    China became a net importer of petrol for the first time in May as Chinese refineries cut back on domestic production and stepped up buying from international markets.

    US corn and soyabean prices hit all-time highs because of ongoing concerns about the impact of bad weather and flooding in the Midwest on US production this year.

    CBOT July corn rose 5 cents to $7.37 a bushel after touching a record $7.60, while CBOT July soyabeans dipped 10 cents to $15.50 after hitting an all-time high at $15.93 a bushel. In Argentina, farmers have blocked roads and restarted their strike but there is no sign of any compromise by the government over plans to impose a new system of export taxes on soyabeans.

    Gains for corn and soyabean spilled over into the wheat market with CBOT July wheat up 12 cents to $8.94 a bushel.

    Gold rose 2.1 per cent to $887.60 a troy ounce, moving towards an important technical level, its 200-day moving average, which John Reade, of UBS, says could herald a pivotal point for the market. "Gold is unlikely to remain around current levels for very long," said Mr Reade.

    Food producers feel the bite after broker downgrade

    By Bryce Elder and Neil Hume Published: June 17 2008 03:00

    Food producers, including Unilever , weighed on the London market yesterday as UBS said the sector was in a temporary sweet-spot.

    "We are concerned that the sector's current premium valuation is vulnerable to any disappointment," Alan Erskine, UBS analyst, said. He was concerned that food and fuel price inflation would slow volume growth in emerging markets.

    "We believe there is a high risk of a disproportionate share price reaction to any earnings revisions, particularly if they are emerging market related, as the perceived growth opportunities there have been a primary reason for the sector's multiple expansion over the last four years," UBS told clients. The broker downgraded its ratings on Unilever, 2.9 per cent weaker at 15.27, and Cadbury , off 2.9 per cent to 633p, to "sell".

    The FTSE 100 was down 8.2 points at 5,794.6 by the close as record oil prices divided the market into commodity producers and consumers. British Airways was the day's sharpest faller, down 4.5 per cent to 239p after Goldman Sachs repeated "sell" advice on a target cut to 177p.

    Carnival lost 2.3 per cent to 17.90 on expectations the cruise ship operator would trim year-end targets when it posts results on Thursday.

    According to industry reports, Carnival has moved one of its ships from Europe to the Caribbean for next year's summer season. "This could be an early signal of . . . weakening demand from US customers for European cruises," said BNP Paribas.

    Anglo American rose 4.6 per cent to 33.37 after it was once again mooted as a possible target for Vale, the Brazilian mining group.

    "M&A has become a feature in our sector again," Jason Fairclough, Merrill Lynch analyst, said. "With new project costs running high and companies awash with cash, miners must be analysing the trade-offs between buying and building. It looks as if companies are voting with their cheque books for M&A."

    Separately, Samancor Chrome, the world's second-biggest ferrochrome producer behind Xstrata , said it would demand a 30 per cent increase in third-quarter contract prices.

    Eurasian Natural Resources jumped 6.3 per cent to 14.04 on an upgrade to "buy" from "hold" at ABN Amro. While the broker's move was to capture higher ferrochrome and iron ore pellet price forecasts, ABN said a merger with Kazakhmys was likely to happen next year. Kazakhmys was up 3.9 per cent to 16.11 and Xstrata faded 0.1 per cent to 41.56.

    Short covering lifted Barclays , up 3.5 per cent to 329p, after the bank confirmed it was looking at a share placing and pre-emptive offer. Barclays has been looking to raise 4bn from strategic investors at a premium to the current share price, according to reports.

    United Utilities slid 1.3 per cent to 731p after Merrill Lynch called the stock "significantly mispriced".

    United is unlikely to get the water charge increases it wants at next year's price review and investors have not factored in the dilution from next month's 1.5bn capital return, Merrill said.

    Home Retail Group , up 3.4 per cent at 226p, was helped by positive comment from Cazenove. Recommending a pairs trade with Kingfisher , down 1.5 per cent to 121.8p, Cazenove said HRG's Argos chain should keep outperforming the sector while its Homebase unit had recovery potential.

    In the same research, Cazenove cut Debenhams to "underperform". The department store's small shareholder base would make a rights issue tricky and asset sales may not be sufficient to pacify lenders, making a debt for equity swap a possibility if trading conditions deteriorate, the broker said.

    On the FTSE 250, BlueBay dived 14.2 per cent to 283p after the asset manager set out plans to cut fees and introduce lock-ins for its Value Recovery fund.

    Poor test results from an oil well offshore Vietnam weighed against Soco International , down 7.1 per cent to 18.60. Informa gained 2 per cent to 446p on talk that a private equity fund could gatecrash its merger plan with United Business Media , up 0.4 per cent to 609p. There was speculation that the Lloyd's List publisher might sell its science division, valued at about 1.4bn.

    We have reproduced this article for scientific reference reasons only. Copyright The Financial Times 17 June 2008