Commodity Prices Sink After S&P Warns On US Credit Rating

by
April 19, 2011

By Dan Strumpf of DOW JONES NEWSWIRES, The Wall Street Journal

NEW YORK (Dow Jones)–Commodity prices fell broadly Monday after Standard & Poor’s raised doubts about the size of the U.S. debt burden, causing a retreat from risky assets and prompting concerns that weaker fiscal profile could hurt demand for raw materials.

Commodities from oil to copper sank after S&P warned that the likelihood of a downgrade of the U.S.’s triple-A credit rating had risen. The ratings agency cut its outlook on the U.S. to negative due to high debt levels and concerns about the budget deficit.

“The type of selling we’re seeing today is more panic than anything else,” said Matt Zeman, chief market strategist at Kingsview Financial in Chicago.

Although China and other emerging economies have been the primary engine behind surging commodities prices in recent years, the U.S. remains a major source of demand for raw materials. Any weakening of its credit rating could mean reduced investment in U.S. assets, potentially slowing the economic recovery and hurting commodity demand.

Still, investors remain worried about any signs of slowdown in China as well. Commodity prices were also dented after the country’s central bank moved to control inflation over the weekend by raising banks’ reserve requirements, triggering concerns the country’s roaring growth rate could slow.

Bucking other commodities, gold futures shot to an all-time high. Investors typically seek out safe-haven investments such as gold when they lose their appetite for riskier assets

Oil futures tumbled nearly 3% after S&P’s early-Monday warning. Crude, of which the U.S. is the world’s biggest consumer, began the session in negative territory after ministers from the Organization of Petroleum Exporting Countries said the market had more than enough supply.

“Hearing the Saudis talk about how oversupplied the market is…puts a damper on the [futures] market,” said Carl Larry, head of Oil Outlooks and Opinions LLC in Houston.

Oil prices hit two-and-a-half-year highs last week and have seen a steep rally this year due to unrest in Libya and the broader Middle East.

Light, sweet crude for May delivery fell $2.64 to $107.02 a barrel on the New York Mercantile Exchange. Brent crude on the ICE Futures Exchange gave up a similar amount.

To read more, visit:  http://online.wsj.com/article/BT-CO-20110418-710899.html

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