Commodities staged a broad retreat on Monday as a stronger dollar and cautious comments from Chinese premier Wen Jibao over the durability of economic recovery in the world’s third largest economy.
Gains seen across commodities last week also prompted analysts to question whether the rally had been over bought and a correction was due.
“We retain our view for a strong correction in the price of oil from current levels, albeit we push back the bulk of this correction to July on the assumption of a slow release of oil tied up in floating storage,” said Harry Tchilinguirian of BNP Paribas.
“On the fundamental side, a high level demand cover by inventories in OECD countries, OPEC slippage in compliance with stated targets reductions in supply and still weak economic activity combine to put downward pressure on the oil price.”
Comments from Wen that the drop off in foreign demand for Chinese goods could hamper the country’s economic growth knocked the confidence of investors convinced that a sharp upturn in Chinese demand will reinvigorate the commodities markets.