Oil prices dropped by more than $1 a barrel while gold sank below the $950 an ounce level on Tuesday as commodity markets staged a broad retreat.
Nymex July West Texas Intermediate lost $1.89 at $59.78 a barrel after ending trading in New York on Friday at $61.67. The Nymex exchange was closed on Monday for a US public holiday.
ICE July Brent fell $1.33 to $58.88 a barrel.
Ahead of the Opec meeting this week, comments from Saudi Arabia that that the oil producers’ group was likely to “stay the course” was seen as an indication that current production quotas would be maintained.
Ed Meir of MF Global noted that rising geopolitical tensions had done little to boost oil prices following North Korea’s test explosion of a second nuclear device and mounting violence in Nigeria over the weekend where militants claimed to have attacked major oil pipelines in the Niger Delta to disrupt a facility run by Chevron from operating.
Hedge funds have extended their bets that oil prices will increase with the latest data from the Commodity Futures Trading Commission showing the speculative net long position in crude reaching a 13 week high.
“Clearly, more fund money is now banking on higher oil prices down the road, and although this stance is supported by the technicals, the fundamental side of the picture looks less promising, particularly in light of the likely Opec decision to leave quotas unchanged,” said Mr Meir.
Francisco Blanch at Merrill Lynch said recent sharp liquidity increases by central banks were contributing to fuel a strong rebound in commodity prices and emerging market equities.
Mr Blanch noted that Opec had plenty of spare crude production capacity and that refining was no longer a bottleneck.
“Spare Opec capacity still stands at 6m barrels a day and we believe key members (of the cartel) would step in to increase output should crude oil prices breach the $80 a barrel mark in the coming months,” said Mr Blanch.