Commodity markets roared back to life on Monday, with oil and silver leading the charge as investors bet last week's biggest slump since 2008 was overdone, and latched onto a falling dollar as reason to buy.
Fears that flooding on the Mississippi River could disrupt refinery operations ahead of the summer driving season drove U.S. gasoline prices higher. That led to a near $7 gain in London's Brent crude, the second-largest one-day gain ever. Last week, Brent fell $16 for its second-largest weekly loss.
Silver, which led last week's retreat, shot 6 per cent higher after a more than 25 per cent dive last week. But trading volume was more than a quarter below the 30-day average, suggesting limited conviction in the bounce.
The dollar - a key determinant for commodity prices - turned weaker late in the day, helping to drive prices to session highs. The correlation between commodities and the dollar strengthened last week to its strongest this year.
"Prices have fallen very sharply and very quickly, so people are dipping their toes back in," said David Thurtell, an analyst for Citigroup in London.
The 19-commodity Reuters-Jefferies CRB index rose 2 per cent for its largest one-day gain since mid-March. It fell 9 per cent last week, its largest decline since December 2008.
Grain markets were moderately higher but many traders were sidelined ahead of a pivotal U.S. government report on Wednesday; trading volume in the soybean complex was the lowest this year.
VOLATILITY TO REMAIN
The rebound in commodities may provide respite to bullish traders caught out by last week's deep and unexpected dive. Phibro oil legend Andrew Hall's $2.6-billion Astenbeck II fund suffered a 12 per cent drop last week, an investor said. London's Clive Capital lost $400-million, the Financial Times reported.
Still, some cautioned that market turbulence was not necessarily over as investors remained jittery about demand in the near term and whether prices were still high after the broad rally since the end of June 2010.
The potential for another dollar rally, with the euro hovering near a three-week low, also kept some market participants on the edge.
"You can get some chunky moves in either direction," said Thurtell.
Crude oil rose almost 6 per cent, after losing 13 per cent or so last week. The front-month contract for U.S. crude settled up more than $5 at above $102 per barrel. London's Brent finished up more than $6 at just below $116.
Silver rose more than 6 per cent to a high of $37.95 and was later at $37.79 an ounce, versus $35.70 late on Friday. Silver fell 25 per cent last week to its lowest level since late February, slipping beneath $33 per ounce.
Wheat led grain futures to a sharp rallied on Monday, partly due to scorching temperatures in the planting regions of the U.S. southern Plains and Europe. The benchmark July contract in Chicago rose 4 per cent, or 31 cents, to settle at $7.90-1/2 per bushel.