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Biggest dive for commodities in 28 years
By Javier Blas in London

Published: July 31 2008 23:35 | Last updated: July 31 2008 23:35

Commodities prices suffered their largest monthly drop in 28 years in July as crude oil prices nose-dived more than $20 from an all-time high of $147.27 a barrel.

The Jefferies-Reuters CRB index, a global commodities benchmark, lost 10 per cent, its largest monthly decline since it fell 10.5 per cent in March 1980, amid worries about lower economic growth damping demand for raw materials.

EDITOR’S CHOICE
Lex: China and commodities - Jul-31Q&A: Fuelling a bubble? - Jul-28Debate on oil speculators hits new pitch - Jul-25The Short View: Oil and US banks - Jul-23Thirsty markets eye water - Jul-23Crude and food falls help lift equities - Jul-23Natural gas, corn, wheat and freight costs plunged last month between 10 and 30 per cent, although from record levels. However, lead, used in car batteries, surged almost 25 per cent on tight supplies.

The fall in energy and agriculture prices will be welcomed, if persisted, by central banks facing rising inflation. But commodities have provided false price signals this year, with the CRB index falling 6.3 per cent in March only to rebound strongly. In spite of last month’s fall, analysts are split on whether the commodities prices have set a peak for the year. But the general bullish outlook is, nevertheless, cracking, with Deutsche Bank’s strategists warning today that oil prices would fall below $100 a barrel by the start of next year. West Texas Intermediate fell 2.1% to $124.15 a barrel by close in New York.

“We expect the short-term cyclical factors that drove the price of oil from $60 to $145 over the past year to reverse in the coming 12 months,” said Marcel Cassard, of Deutsche Bank.

“The impact of the decline in commodity prices on global inflation will be significant.”

Lehman Brothers is also forecasting lower oil prices, while Goldman Sachs, Merrill Lynch and Barclays Capital continue to be, in different degrees, bullish.

Ed Morse, head of commodities research at Lehman Brothers, said: “Fundamentals are weakening, particularly in the oil market.” Investors have been worried about a deteriorating economic outlook and signs of fresh crude oil supplies arriving from Saudi Arabia.

The International Monetary Fund recently warned that although the global economy weathered better than expected the crisis during the first half of the year, “global growth is expected to decelerate significantly in the second half of 2008”.

Traders warned the key commodity indices and energy markets closed the month below the previous month’s opening, resulting in a strong technical bearish signal, which could trigger further sales in August.
Copyright The Financial Times Limited 2008