FUTURES MOVERS - Oil falls, gold rises after U.N. report - Crude closes under $33 a barrel; gold up, but off $373
cbs.marketwatch.com By Myra P. Saefong, CBS.MarketWatch.com Last Update: 3:43 PM ET Jan. 27, 2003
NEW YORK (CBS.MW) -- Crude futures slipped back under $33 a barrel and gold prices closed off their high of $373 an ounce Monday after a much-anticipated report by the U.N.'s chief arms inspector on Iraqi weapons failed to shed light on the next U.S. move.
"The concern that the U.S. will invade Iraq is now becoming less clear as Hans Blix did not produce the "decisive" evidence that the world wanted to see of Iraq's weapons of mass destruction," said John Person, head financial analyst at Infinity Brokerage Services.
On the New York Mercantile Exchange, the March crude futures contract closed at $32.29 a barrel, down 99 cents. The contract fell to a low at $32.20.
February gold ended the session at $369.40, up $1 an ounce on Nymex, after trading earlier at $373. See Metals Stocks.
Iraq hasn't yet accepted a U.N. demand that it forsake weapons of mass destruction, but is cooperating "on the whole" with weapons inspectors, Blix told the Security Council Monday.
Blix said more work is needed to verify Iraqi compliance. He pointed out that many questions remain, including those regarding Iraq's development of missiles, and chemical and biological weapons. See full story.
Crude futures gained more than $1 Friday ahead of the U.N. Security Council meeting, but BridgetonGlobal.com head analyst Jeff Mokychic noted that "once the report came without any surprises, traders were able to scale back on their position."
Overall, Blix's testimony was "mixed at best," said Charles Nedoss, a gold analyst at Peak Trading Group. "There was no smoking gun, but there was compelling evidence that Iraq hasn't been fully forthright and has breached the U.N. agreement."
Todd Hultman, president of Dailyfutures.com said the U.S. and U.K. would likely "seize upon" Blix's comments that Iraq hasn't accepted the disarmament process to "strike Iraq."
"Other members of the Security Council are not swayed, but as [U.S.] Secretary General [Colin] Powell said this weekend, the U.S. is prepared to attack without the consent of the other members," Hultman said.
Also Monday, John Negroponte, U.S. ambassador to the U.N., called Iraq's 12,000-page report, which was submitted in December, "inaccurate." Negroponte said Iraq is "not cooperating unconditionally."
Jeremy Greenstock, British Ambassador to the U.N., said the situation wouldn't be resolved peacefully under the U.N. resolution unless the U.N. gets 100 percent cooperation from Iraq. The U.S.'s Powell echoed Greenstock's comments Monday afternoon.
President George Bush "takes his case to the American people" Tuesday in his State of the Union Address, and "military action is likely to commence sometime in February," said Hultman.
Despite the latest decline in oil futures, prices "will continue to trade on the defensive as immediate supplies will be hard pressed to replenish from Middle East outflows and more importantly the 'cat and mouse' game with Iraq will continue," said Person.
The outcome of the situation in Iraq remains uncertain, and world oil supplies are still "vulnerable," Person said.
Venezuela still in backseat
In other news Monday, Venezuela's oil strike entered its ninth week with OPEC Secretary General Alvaro Silva indicating the cartel is doing all it can to make up for the oil supplies lost in the strike.
"For the oil markets, a definitive end of the strike does not mean an immediate return to pre-strike output levels," analysts at Fimat USA told clients Monday. "It may take 30 to 45 days to get back to the 1.5 million barrel per day mark, with 45 to 60 days necessary to elevate production by an additional 1 million barrels per day."
The latest report on U.S. supplies failed to reveal much of an effect from the loss of production, however.
Early Thursday, the American Petroleum Institute reported that crude stocks rose by 181,000 barrels to total 272.4 million barrels in the week ended Jan. 17, up from 272.2 million a week earlier.
Last week, the Energy Department reported that inventories of crude climbed 1.5 million barrels to 273.8 million barrels as of the week ended Jan. 17, up from 272.3 million a week earlier. See full story. An update on supplies is due Wednesday morning.
Petroleum-product prices closed lower to follow crude. February unleaded gasoline fell by 2.1 cents to 90.15 cents a gallon. February heating oil closed at 93.43 cents a gallon, down 1.59 cents.
Natural-gas futures closed down 12.8 cents at $5.396 per million British thermal units with the latest six- to 10-day forecasts calling for above-normal temperatures in the Northeast through New Mexico and on the West Coast, according to Fimat.
Over in the equities arena Monday, the losses in crude pressured most oil service stocks, and took the Oil Service Index ($OSX: news, chart, profile) down 4.9 percent. See Energy Stocks.
Sugar, cocoa futures sweeten
Sugar futures jumped more than 5 percent, as high crude-oil prices are expected to increase the demand for ethanol production, said Dailyfutures.com's Hultman.
"With the March sugar contract trading over a cent above the July contract, it is fair to say that the markets are viewing this tightness in supply as a temporary problem," he added.
March sugar added 0.41 cent to stand at 8.38 cents a pound after touching a high at 8.53 cents.
Cocoa futures also moved higher on continued unrest in Africa's Ivory Coast, a major cocoa-producing region. March cocoa added $63 to $2,250 per metric ton.
The Reuters/CRB Index, a broad-based measure of the commodity futures market, closed at 243.3, down 0.4 percent amid losses in crude futures.
Myra P. Saefong is a reporter for CBS.MarketWatch.com in San Francisco.