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Oil Not Only Surging Commodity

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By MILLIE MUNSHI, Bloomberg News

Published: February 20, 2008

Commodity prices surged to a record, as oil jumped above $100 a barrel and copper rallied, on signs that increased global demand for raw materials and the weakening dollar are fueling inflation.

The UBS Bloomberg Constant Maturity Commodity Index gained as much as 3.1 percent to a record 1,447.015. Crude oil, platinum, soybeans and gasoline touched their highest prices ever, and copper jumped 5.5 percent, the most of any commodity futures.

China's inflation accelerated at the quickest pace in more than 11 years last month, the government said Tuesday. Investors are buying more physical assets on speculation inflation will spur price gains, said William O'Neill, a partner at Logic Advisors in Upper Saddle River, N.J. The dollar fell the most this month against the euro, making commodities priced in U.S. currency cheaper for most importers.

"Commodities are one of the only instruments that can keep pace with inflation as goods become more expensive," said Stu Flerlage, who helps manage more than $600 million at NuWave Investment Corp. in New York. "There's a huge pool of capital that's going to be going into commodities, and prices will continue to rise."
Chinese consumer prices rose 7.1 percent in January from a year earlier, the statistics bureau said Tuesday, after gaining 6.5 percent in December. Inflation in the world's fastest-growing major economy has soared since last year partly because of food and fuel costs.

"Commodity markets are exploding in a broad inflationary move," O'Neill of Logic Advisors said. "Global inflation has been underestimated, and commodities are coming into play as people want more hard assets."

Most commodities are in short supply as disruptions have left producers struggling to keep up with demand, NuWave's Flerlage said.

Oil jumped on speculation OPEC will curb supplies, and gasoline surged after a refinery explosion in Texas renewed concern U.S. fuel output will fall. Platinum has jumped more than 40 percent this year, and coal prices have gained as power outages in South Africa cut mine output.

Crude oil rose as much as 4.8 percent to a record $100.10 a barrel on the New York Mercantile Exchange. Gasoline gained as much as 4.9 percent to $2.6169 a gallon on the Nymex, the highest since the reformulated contract began trading in October 2005. On the Chicago Board of Trade, soybeans for May delivery rose as much as 2.7 percent to a record $14.2875 a bushel. Platinum reached $2,174 an ounce on the Nymex, the highest ever.

Copper rose as much as 5.7 percent to a four-month high of $3.7415 a pound on the Comex division of the Nymex. Gold gained as much as 3.1 percent to $934.40 an ounce.

The Standard & Poor's GSCI Index of 24 commodities had its biggest increase this year as it surged to a record, as did the Reuter-Jefferies CRB Commodity Index and the Dow Jones AIG Commodity Index.

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