LOWER FEED AND OIL PRICES GIVES LIFT TO EQUITIES
By Javier Blas in London and Michael Mackenzie in New York
Thursday, July 24, 2008
Oil prices continued to fall yesterday, hitting a low of $125 a barrel and fuelling similar declines in other commodities that hit record highs earlier this month such as corn and soyabeans.
The dive in energy and agriculture commodities prices, which has already helped boost a rally in share prices on Wall Street, will provide breathing room to central banks worried about rising inflation.
The Reuters-Jefferies CRB, a global commodities benchmark, hit its lowest level since early May yesterday, dropping 13 per cent from a record high set in early July. The fall has almost halved the index's gain so far this year, after it posted the largest rise in the first six months of the year since the 1950s.
Bankers said investors' exit from commodities was due to a combination of concerns about weakening global economic growth; an attempt to lock in gains from earlier record price rises, and fears that large price volatility could lead to big losses.
“Hedge funds are taking some commodities risk off the table,” said Kevin Norrish, a commodities analyst at Barclays Capital in London.
The exodus was evident in the number of outstanding oil contracts at the New York Mercantile Exchange, which has fallen to the lowest level in 17 months. Naumam Barakat, of Macquarie in New York, said: “It looks like a preponderance of index money is out of the long side of oil and commodities in general.”
The commodities sell-off has also helped a rally in equities, with the S&P 500, Dow Jones and Nasdaq indices all now out of bear market territory.
In midday New York trading, the S&P was yesterday up 5.5 per cent to 1,282.02 from its close of 1,214.91 on July 15. New regulations against short-selling has also boosted financials.
Oil prices yesterday fell to an intraday low of $125.31 a barrel, the lowest since early June and down 15 per cent from a record of $147.27 a barrel set earlier this month.
