COMMODITIES-Oil slips, spotlight on China commodities demand

Tue May 10, 2011 10:13am EDT

* CME hikes margin calls for crude futures

* Eyes on China inflation, tightening

(Updates prices, adds comment/detail)

By Pratima Desai

LONDON, May 10 (Reuters) - Oil prices slipped on Tuesday as the cost of holding the commodity rose and invstors worried that China may extend monetary tightening to slow economic growth.

Copper held firm, but again uncertainty about demand from top consumer China was expected to check gains. Gold slipped as the dollar held firm .DXY, making commodities more expensive for holders of other currencies. [USD/]

Analysts said the dollar was also weighing on oil. [O/R]

Oil earlier fell about 2 percent after CME Group Inc (CME.O), the world's largest commodities exchange, raised margin calls for crude futures by 25 percent as volatility soared. It is the fourth hike since February. [ID:nN09267830]

Brent crude LCOc1 was down 0.9 percent to $114.87 a barrel at 1326 GMT after posting the second-largest gain on record on Monday. U.S. crude CLc1 was down 1.5 percent at $101.08.

The cumulative increase in margins to maintain positions on U.S. crude benchmark West Texas Intermediate CLc1 since February is 67 percent, with the cost rising to $6,250 per contract from $3,750. [ID:nN09267830]

"Having high margin requirements makes it more difficult for speculative traders to enter the market, so naturally that will cause less speculative activity in oil markets," said Ben Westmore, a commodity economist at National Australia Bank.

CHINA INFLATION

China's April crude oil imports rose 1.7 percent from a year earlier to 5.24 million barrels per day (bpd), their third highest, official data showed on Tuesday, but the data focused attention on likely future Chinese demand. [ID:nL3E7GA0AX]

"People are still trying to figure out how much monetary tightening will play a role in slowing growth over the next quarters," said Jeremy Friesen, commodity strategist at Societe Generale.

"The numbers from China were pretty good. People are now going to be paying attention to whether you see a real drop in demand, related to high prices and tight monetary policy."

Industrial commodity markets were on alert for inflation data from China due on Wednesday, which could yield clues to the future direction of monetary policy. ECONCN <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

Commodity correlations with dollar

r.reuters.com/wex39r

Commodities performance r.reuters.com/nab49r

Is the global economy slowing? r.reuters.com/kej49r

Oil daily price changes link.reuters.com/qaj49r

China copper imports link.reuters.com/dur49r

China commodity trade data [ID:nEAP307415]

PDF on commodities' worst rout since 2008

link.reuters.com/xer49r ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

Benchmark copper CMCU3 on the London Metal Exchange was trading at $8,876 a tonne from $8,890 at the close on Monday.

Last week fears of weaker-than-expected global demand pushed the metal, used widely in power and construction, to five-month lows of $8,657.50 a tonne. [MET/L]

Lower Chinese imports of copper, down 13.7 percent to 262,676 tonnes in April from 304,299 tonnes in the previous month, weakened sentiment. [ID:nL3E7GA0E4]

"Some players think that the lower import dynamics mean that China is currently now using local stockpiles to make up for demand," said analyst Daniel Briesemann at Commerzbank

Spot gold XAU= was bid at $1,509.30 an ounce compared with $1,513.15 late in New York on Monday. Silver XAG= was at $37.95 an ounce from $37.89. [GOL/]

"Our sales of physical metal yesterday were the second highest so far this year. Considering where gold is trading, the strength of this demand was surprising," UBS said in a note.

"Without necessarily expecting this very high pace of buying to continue, we nonetheless would look for Indian demand to continue at above-average levels, given how willing these buyers have lately been at prices in excess of $1500."

Grains markets were boosted by supply concerns.

Chicago wheat WN1 rose 1 percent, notching up its biggest two-day gain in three weeks, as dry weather in parts of Europe and the U.S. crop areas helped buoy prices. [GRA/]

(Additional reporting by Melanie Burton and Manolo Serapio Jr, editing by Jane Baird)

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.