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Commodities Wednesday posted their largest gains in a week, as oil prices rose on encouraging U.S. inventory data and the dollar slipped, fuelling buying in a sector that has slumped this month.

U.S. crude closed above $100 (U.S.) a barrel for the first time in five sessions. Copper and wheat futures finished up more than 2 per cent each.

Meanwhile, gold hit a three-week high Wednesday, boosted by concern over the debt crisis in euro zone countries such as Greece and as June options expired in the COMEX futures market.

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Spot gold rose as far as $1,532.10 per troy ounce, its highest since May 4, but pulled back to $1,526.05 by 3:20 p.m. ET, still higher than $1,525.75 late in New York on Tuesday.

Benchmark COMEX June gold futures finished $3.40, or 0.22 per cent, higher at $1,526.70 an ounce in New York. They rallied earlier to $1,532.30, the loftiest since May 4.

The broad-based rally took the 19-commodity Reuters-Jefferies CRB index up 1.6 per cent, extending Tuesday's rise of 0.7 per cent.

It was the index's biggest daily rise in a week, but so far this month the CRB remained down 7 per cent.

Oil prices rose after weekly U.S. government data showed an unexpected drop in stockpiles of distillates such as heating oil and diesel.

The dollar's fall against the euro encouraged more buying of commodities. More markets - including cattle and soft commodities such as coffee and cocoa - surged as investors positioned themselves ahead of a long weekend with U.S. markets closed for Memorial Day Monday.

"We've lots of pre-holiday short-covering emerging in livestock and softs as we had managed to press those markets to very, very low levels in recent weeks," Sterling Smith, analyst at Country Hedging in St Paul, Minnesota.

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"The grains markets are also rebounding from yesterday's drop. In the eurozone, there is better confidence over the Greek debt situation, and that is leading to a lot of commodities buying, particularly in metals."

Oil prices rose to their highest level in two weeks as data from the U.S. Energy Information Administration showed an unexpected drop in stockpiles of distillates last week, trumping a sharp rise in gasoline inventories.

U.S. crude's benchmark front-month contract in New York settled up $1.73 at $101.32 a barrel. It was the first time since May 18 that the market had closed above $100.

Sharp upward revisions of oil price forecasts by Wall Street giants Goldman Sachs and Morgan Stanley have deepened the schism between oil bears and bulls to levels unseen since oil prices peaked in 2008, a Reuters monthly poll showed.

Bears expected oil to plunge to $75 a barrel on weak demand and ebbing geopolitical risk premiums, while bulls see crude soaring to $140 due to supply shortages and OPEC's limited ability to cushion any new disruption.

Copper's benchmark three-month contract in London closed up $205 at $9,065 per tonne. New York's most-active copper futures' contract, July, finished up 9.40 cents at $4.1070 per lb.

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Investors in copper were reacting belatedly to Macquarie Bank's removal of a short-term sell in the metal a week ago and Goldman Sachs' recommended long position this week, analysts said.

"All the banks have been putting out buy calls on copper... I think we are seeing an uptick in investment demand for longer-term investors," said Catherine Virga, senior base metals analyst with CPM Group in New York.

U.S. wheat closed higher on poor crop weather in several key areas, including dryness in western Europe and excessive wet weather in the northern U.S. Plains and Canada.

Front-month wheat on the Chicago Board of Trade settled up 16-3/4 cents at $7.96-1/2 per bushel, after four straight sessions of losses. and the United States.

Corn and soybeans also rose, as rain has delayed seeding of both U.S. crops and could reduce yields.

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