Commodity Prices Retreat, Hurt by Dollar's Advance -- Update
September 21 2020 - 3:58PM
Dow Jones News
By David Hodari and Benoit Faucon
Commodity prices retreated with stocks Monday, stung by the
weakening recovery in fuel demand and a strengthening dollar.
Fears that some of Libya's long-blockaded crude would return to
the market added to the pressure on oil pries. Brent-crude futures,
the international energy benchmark, fell 4% to $41.44 a barrel
while U.S. crude futures dropped 4.4% to $39.31 a barrel.
"The market fundamentals had been weakening since August," said
Barclays oil strategist Amarpreet Singh, pointing to an increase in
production by the Organization of the Petroleum Exporting Countries
and its allies. The demand recovery in India -- the world's
third-largest oil consumer -- has also gone into reverse, Mr. Singh
added.
The losses spilled from industrial commodities into precious
metals. Front-month gold futures fell 2.6% to $1,901.20 a troy
ounce, their lowest close since late July, while silver dropped 10%
to roughly $24.30 a troy ounce. Those declines were likely sparked
by a climb in the U.S. dollar, said Bart Melek, global head of
commodities strategy at TD Securities.
Precious metals, like most other commodities, are denominated in
dollars and become more expensive to buyers outside the U.S. when
the currency gains ground. The WSJ Dollar Index, which tracks the
U.S. currency against a basket of others, advanced 0.7% Monday.
Gold's drop also suggests some investors were selling precious
metals to raise cash to meet margin calls in the stock market,
according to George Gero, a managing director at RBC Wealth
Management. Forced selling spurred gold-price declines during the
market crisis earlier in the year.
"This is one of the most serious downdrafts I have seen in quite
some time," Mr. Gero said. "Silver is taking a much bigger hit
because the industrial uses of silver either give it a tailwind or
a headwind depending on reopening [of economic activity]."
The decline in oil prices extends a bout of volatility in the
crude market. Demand remains well below levels from a year ago and
traders are increasingly concerned that it is slowing. OPEC and its
allies, meanwhile, have moved to ease the historic production curbs
they imposed to bolster prices earlier in the year.
Libyan exports represent another wild-card. The country's
National Oil Corp. has restarted production in the east of the
country following a deal over the weekend between the
internationally recognized government and renegade Russian-backed
commander Khalifa Haftar, who had blockaded production there for
eight months.
Libyan officials told The Wall Street Journal the country's
total production figure was set to rise by 220,000 barrels a day
from Thursday. The deal came amid a near decadelong civil war in
the North African country. It allowed the state oil company to end
force majeure -- the legal status that allows a party to default on
its contracts for reasons beyond its control -- on exports.
Libya produced more than a million barrels of oil a day in 2019,
according to the International Energy Agency, but several groups
have closed or sabotaged oil facilities in recent months. In
August, Libya produced just 100,000 barrels a day, the IEA said.
Libya's NOC said it would only restart production and exports in
facilities that were safe and unoccupied by Russian
mercenaries.
Some analysts said the fragile accord in Libya wouldn't derail
efforts to bring the supply and demand of oil back into balance. A
speedy return to full capacity is threatened by "significant
uncertainty on the timing, magnitude and sustainability of such a
ramp-up," said Damien Courvalin, head of energy research at Goldman
Sachs.
Natural-gas prices also slumped Monday amid concerns that
Tropical Storm Beta could cause power outages when it strikes the
Gulf Coast, hitting demand. Henry Hub gas futures dropped over 10%
to $1.84 per million British thermal units, extending their slide
this month to 30%.
--Dan Molinski contributed to this article.
Write to David Hodari at David.Hodari@dowjones.com and Benoit
Faucon at benoit.faucon@wsj.com
(END) Dow Jones Newswires
September 21, 2020 15:43 ET (19:43 GMT)
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