Oil Price drops – while white gold hits 7 month high!

Oil prices slipped on Monday as forecasts for warmer weather in the US prompted expectations that demand for heating oil would drop.

Trading volumes were low due to the closure of US commodity exchanges for the Presidents Day holiday, while much of Asia was absent for the Lunar New Year, also reducing activity.

ICE Brent for April delivery fell 64 cents to $58.31 a barrel in late afternoon London trade. March West Texas Intermediate dropped 82 cents to $58.57 a barrel in electronic trade.

In the latest weekly data from the Commodity Futures Trading Commission in the US, the report showed that non-commercials scaled back their net short positions, which means less investors were betting on a fall in oil prices.

The data showed the net short position for non-commercials had shrunk from 39,000 contracts to almost 21,500 in the week to February 13.

John Reade, precious metals analyst at UBS, said that the CFTC data also showed that speculative traders in US gold futures had added 2.4m ounces to their net long position, which was now at 19.69m ounces, the highest level since December 2005.

“Over the past five weeks speculators have added more than 10m ounces, the largest five-week increase since August 2005. So both the size of the spec long position and the speed of its increase are recently unprecedented – and we estimate that a further 1-2m ounces of net long positions have been initiated since then,” Mr Reade said.

Gold reached a seven- month high of $673.20 a troy ounce yesterday on a weaker dollar, before easing to $670.90/$671.60, up $2 on the day.

“We cannot rule out a quick move higher. . .we would not buy gold here and would rather wait for a correction to get long,” said Mr Reade.

Lead touched a record high for a second successive session when it reached $1,815 a tonne, before easing to $1,777.5 in late trade, down $8 on the day. Tin prices were also hovering near their 22-year highs of $13,275 a tonne after CRU, the metal consultants, forecast the global tin market to see a 30,000 tonne supply shortfall this year.

Barclays Capital said assets under management in commodity products may reach up to $150bn by the end of 2008. The bank said the estimate was based on a survey of 240 institutional investors at a commodity investment conference last week.

Barclays said of those polled, 52 per cent said investment would reach this level, while 36 per cent said it would exceed $150bn. Some 9 per cent estimated it at $90-$120bn and 3 per cent estimated that it would fall to $90bn or less from the current estimate of about $100bn.