Oil surges on signs of US supply cuts

London

WORLD oil prices surged last week after recent heavy losses, aided by signs of tightening US supplies, according to analysts.

Coffee prices in New York also recovered on indications of possible tightness for Brazilian supplies, while gold dropped further as the shine was taken off its status as a haven following positive US jobs figures.

Crude futures shot higher in volatile trading as data revealed production cuts that could curb the supply glut. The Baker Hughes North America rig count fell sharply in the week to Jan 30, dropping by 128 rigs to 1,937. That compared with 2,393 a year ago.

Deep cuts in capital spending by major oil companies, including new announcements on Tuesday by BP and BG Group, also suggested tighter supplies in the future.

"A lot of factors are at play. The capital spending cuts just keep coming, with BP, and we're seeing one of the fastest drops of spending across the sector I can remember," said Phil Flynn of Price Futures Group.

Some analysts cautioned that the current oil price rebound would likely not last because supplies still far outweigh demand.

"Oil has enjoyed the combination of weakening supply and rising demand fundamentals to maintain its surge," said Chris Beauchamp, market analyst at trading firm IG.

Oil prices plunged by about 60 per cent from their June peaks to a six-year low the week before, largely on a surge in global reserves boosted by robust US shale production.

By Friday on London's Intercontinental Exchange, Brent North Sea crude for delivery in March soared to US$58.08 a barrel from US$49.65 one week earlier.

On the New York Mercantile Exchange, West Texas Intermediate or light sweet crude for March rallied to US$50.48 a barrel compared with US$45.35.

US employers kept their doors wide open for new job seekers in January despite a mid-winter slowdown in economic activity, a strong report by the Labor Department showed Friday.

Coupled with a modest gain in wages, the much better-than-expected report suggested the US labour market is beginning to tighten after years of slack, economists said.

The department reported that 257,000 net new jobs were generated last month, the 11th straight month of growth above the 200,000 level.

It confirmed expectations that the Federal Reserve will begin raising near-zero interest rates in the middle of this year, if not earlier.

By Friday on the London Bullion Market, the price of gold dropped to US$1,241 an ounce from US$1,260.25 a week earlier. Silver grew to US$17.22 an ounce from US$16.92.

On the London Platinum and Palladium Market, platinum increased to US$1,239 an ounce from US$1,221.

Palladium advanced to US$786 an ounce from US$775 the week before.

Most industrial metals rose, with copper striking a two-week peak at US$5,755 per tonne as monetary policy easing in China stoked hopes of rising demand in the key commodity consumer.

China's central bank said on Wednesday that it would make an across-the-board cut in the percentage of funds banks must hold in reserve, the first such cut in nearly three years as the world's second-largest economy falters.

The People's Bank of China said in a statement that the reserve requirement ratio would fall by 0.50 percentage points, effective from Thursday. The last time the central bank implemented an across-the-board cut in reserve requirements was May 2012.

"Base metal prices were supported by China's cut. We expect copper prices to benefit too," said Natixis analysts in a note to clients.

By Friday on the London Metal Exchange, copper for delivery in three months rose to US$5,677 a tonne (US$5,468 a week earlier); aluminium rallied to US$1,878.50 (US$1,863.50); lead increased to US$1,860 (US$1,845); tin declined to US$18,920 (US$19,250); and nickel gained to US$14,920 a tonne (US$14,720).

Cocoa futures extended losses.

"The outlook for the price of cocoa has deteriorated dramatically over the last month, as recent . . . data suggest demand is weakening," said Hamish Smith, commodities economist at consultants Capital Economics.

By Friday on LIFFE, London's futures exchange, cocoa for delivery in May dipped to £1,911 a tonne compared with £1,917 for the March contract a week earlier.

On the ICE Futures US exchange, cocoa for May climbed to US$2,777 a tonne from US$2,707 for the March contract the previous week.

Sugar prices steadied after recent falls caused by strong supplies.

"High prices some three years ago stimulated production and the market has had a hard time absorbing this, leading to high stocks" of sugar, said Nick Penney, senior trader at Sucden brokers.

By Friday on LIFFE, the price of a tonne of white sugar for delivery in March edged up to US$382.50 from US$382.40 a week earlier. On ICE Futures US, the price of unrefined sugar for March slid to 14.57 US cents a pound from 14.77 US cents.

Prices recovered in New York on signs of possible tightness for Brazilian supplies, traders said.

By Friday on ICE Futures US, Arabica for delivery in March gained to 166.60 US cents a pound from 159.40 cents a week earlier.

On LIFFE, Robusta for March eased to US$1,927 a tonne from US$1,934.

Kuala Lumpur prices rebounded.

By Friday, the Malaysian Rubber Board's benchmark SMR20 rose to 141.85 US cents a kilo from 138.45 US cents a kilo. AFP