SLUMPING energy prices led commodities to a 12-year low as the dollar’s best rally since 2008 reduced the investment appeal of raw materials amid surpluses of everything from oil to sugar.
The Bloomberg Commodity Index fell 1.4 per cent to 97.5777, the lowest level since August 2002, dragged down by crude oil and raw sugar. The Bloomberg Dollar Spot Index, tracking the greenback against 10 currencies, is set to climb the most since 2008 this quarter and reached the highest level in data going back to the end of 2004. A stronger dollar tends to deter investment in raw materials.
Commodities are tumbling as economies expand in the US and cool in other nations, driving the dollar higher. The Federal Reserve will hold a policy meeting this coming week as strength in the US labour market fuels speculation that the central bank will lay the groundwork for higher borrowing costs.
The European Central Bank started a bond-buying plan this week, adopting so-called quantitative easing (QE) to spur growth. Goldman Sachs Group Inc said commodities may drop 20 per cent over the next six months amid rising supplies.
“The combination of prospective Fed rate hikes versus QE in Europe and Japan suggests that dollar strength can continue,” Nic Brown, the London-based head of commodities research at Natixis, said by e-mail on March 10.
“This stronger dollar inevitably implies downward pressure on the dollar-denominated price of commodities. Those used as a safe-haven store of value are most at risk.”
West Texas Intermediate crude slid 4.7 per cent to end at US$44.84 a barrel in New York, the lowest settlement since January. A glut of oil in storage in the US expanded for a ninth straight week, the Energy Information Administration said March 11. Natural gas dropped for a second day, losing 0.3 per cent to US$2.727 per million British thermal units.
“Energy, be it crude oil or US natural gas, see excess supply driven by the shale boom,” Harry Tchilinguirian, head of commodities markets strategy at BNP Paribas SA in London, said by e-mail.
The dollar index added 0.8 per cent to 1,222.12 and climbed 8.1 per cent so far this year. — Bloomberg