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Commodities falling as sellers emerge

Thursday, February 21 09:04:16

Oil and copper hit multi-week lows today and gold struggled to hold above its weakest level in seven months on concerns the U.S. Federal Reserve might pull the plug on its stimulus program sooner than thought.

Talk of a hedge fund liquidating positions also pushed down prices below key support levels as investors reassessed if bullish bets on the global economy were premature, with evidence of a rebound in raw material demand yet to emerge.

Commodities traded in Shanghai and Tokyo similarly slumped, with the Chinese also spooked by government efforts to extend property curbs and signs the central bank may be beginning a tightening cycle.

The Fed's comments were the "big driver" for the selldown, said Sijin Cheng, commodities analyst at Barclays Capital.

"The recent rally was mostly due to expectations about macroeconomic easing and potential demand increase, so any change in the prevailing macro sentiment would hit prices."

Several Fed officials think the U.S. central bank might have to slow or stop buying bonds before seeing the pickup in hiring the measure is designed to deliver, according to minutes of a policy meeting last month.

Brent crude for April delivery lost $1.27 to hit a three-week trough of $114.33 a barrel, adding to a fall of almost $2 on Wednesday.

U.S. crude touched a session low of $93.66, the weakest in just over a month.

Oil was among the hardest hit by Wednesday's sell-off. Hedge funds and other large speculators have nearly doubled their bets that oil prices will rise since mid-December, and have amassed positions in Brent and U.S. crude oil futures and options equivalent to around 440 million barrels of oil, regulatory and exchange data shows.

Oil "was on helium again and got ahead of fundamentals," said Tony Nunan, a risk manager at Mitsubishi Corp. ( C) Reuters