Oil fell on Friday to cap a frenzied trading week that sliced prices by a record of more than $16 (U.S.) a barrel on demand worries and a move by investors to slash commodities exposures. Silver rose 2 per cent, snapping a five-day losing streak.
Oil bounced up early, then began to erase gains as the dollar rose. Crude turned negative late, extending Thursday's shock-inducing collapse, when Brent fell by as much as $12, a record, in a furious, high-volume session that saw wave after wave of selling as key technical levels were broken.
Selling pressure on oil and other commodities came on several fronts throughout the week. Investors weighed factors from the death of Osama bin Laden to the impact of higher fuel and commodity costs on consumer nation economies to the monetary policy in major economies.
Brent crude fell $1.67 to settle $109.13 a barrel in heavy trade, with volumes twice the 30-day moving average. The contract tumbled $16.76 a barrel for the week, marking the largest weekly decline ever in dollar terms.
U.S. crude futures settled down $2.62 to $97.18 a barrel, after trading as high as $102.38 following supportive U.S. jobs data. Volumes were 70 per cent over the 30-day moving average. U.S. crude ended down $16.75 for the week, the biggest weekly drop since the contract began trading in 1983.
Oil got early support from U.S. Labor Department data showing private employers added jobs in April at the fastest pace in five years. But then the rising dollar again dragged prices down.
The euro fell to its lowest in more than two weeks and headed for its biggest weekly decline against the dollar since January. The move followed a German news report, later denied, suggested Greece had raised the possibility of leaving the euro zone.
"Payrolls were bullish initially, but the oil market is worried about demand growth," said Bill O'Grady, Chief Investment Strategist Confluence Investment Management in St. Louis.
"If Greece were to leave, which is not easy to do, the European banking system would be in great trouble, damaging the economy and oil demand."
Concerns about the end of the second U.S. quantitative easing program in June also weighed on prices. The program, in which the Federal Reserve purchased U.S. Treasury debt, flooded markets with cash and helped drive up crude prices.
Investors also were watching moves by other big oil consumers. India's central bank raised rates more than expected on Tuesday, and expectations No. 2 oil consumer China could take similar actions hit crude on Wednesday.
Silver's modest rise followed several days of losses that cut prices by almost a third, while gold rose after encouraging U.S. jobs data triggered a broad bounce in beaten-down commodities.
Silver, hit by a succession of margin hikes that nearly doubled costs, had suffered the biggest sell-off since prices collapsed in 1980. Dealers, however, said the 30 per cent slide from last week's record high was overdone.
Precious metals rallied early with other markets after data showed private-sector hiring hit a five-year high in April. But metals pared gains when the dollar surged against the euro after a German media report suggested Greece had raised the possibility of leaving the euro zone. Greece denied that.
"There is no reason why silver should have taken such a big hit. It's all margin-related," said COMEX floor option trader Dominic Cognata.
"At some point, it becomes a buying opportunity for people who missed out on the last silver rally to get back in right now."
Investors also bought bullish silver options as the prices of options fell heavily over the last week, Cognata said.
Spot silver initially traded as low as $33.22, its weakest since Feb. 25, pressured by follow-through selling after it plunged 12 per cent on Thursday. It was up 1.8 percent at $35.30 by 4:10 p.m. ET. U.S. futures trading was active, with volume nearly three times its 250-day average.
COMEX OPEN INTEREST UP
Open interest in U.S. COMEX silver futures rose 3 per cent Thursday even as prices fell sharply, a sign the market remains vulnerable to further selling, traders said.
"We find it disconcerting for it means that the liquidation that is needed to clear the market's collective head has not actually taken place," said Dennis Gartman, publisher of the Gartman Letter.
The price of the U.S. June silver contract fell as much as 13 per cent on Thursday, leading a broad decline in the commodities sector. On Friday, June was down over 2 per cent.
"There was liquidation, but then there were new people getting in and going with the momentum trade" to short-sell silver, said COMEX options floor trader Jonathan Jossen.
Silver had its worst week since the Hunt Brothers collapse in 1980, after shedding 26 per cent this week as higher futures margin requirements prompted speculators to unwind bullish positions.
Silver has slumped around 35 per cent since touching a record high of $49.51 an ounce on April 28. A major factor behind the sell-off was higher margins for silver traded on the Chicago Mercantile Exchange Group, which raises trading costs.
A record $1-billion outflow from the iShares Silver Trust in the week ended Wednesday helped feed silver's torrid price decline, just as the fund's earlier inflows aided the prior rally.
"The ease of access from exchange-traded products can be the tail that wags the dog," said Roger Nusbaum, chief investment officer at Your Source Financial. ETF trading and share redemptions "can be a disruptive force in the short term, but it is the sort of thing that will flame out," he said.
The commodities sector was broadly higher after the positive U.S. jobs report which suggested the economic recovery would regain speed this quarter after stumbling in the first three months of the year. That view suffered setbacks earlier this week as other reports pointed to a slowing labor market.
GOLD UP ON PHYSICAL BUYING
Gold also bounced on Friday as jewelers, physical buyers and bargain hunters, especially in Asia, took advantage of lower prices.
Spot gold gained 1.4 percent to $1,491.80 an ounce, still sharply below a record high of $1,575.79 posted on May 2. COMEX June gold futures settled up $10.20 at $1,491.60, moving in a range from $1,471.10 to $1,498.50.
For the week, gold lost 5 percent, the worst weekly performance since late February 2009. Sentiment among precious metals investors also took a hit after high-profile investor George Soros, who was bullish on gold and a top investor in gold funds, has been selling gold and silver in the past month or so, traders said.
Indians, the world's biggest buyers of bullion, took gold's latest tumble as another incentive to buy on Akshaya Tritiya, one of the major gold-buying festivals, and as India's wedding season gathered pace.