Earlier, oil declined as Kim Jong Il, the leader of North Korea, died, causing worries that a possible internal power-struggle may lead to deteriorating relationship with South Korea. The continuing problems in Europe also damp demand for oil.

January contract for crude for delivery (which expires today) rose $0.7 to $94.58 per barrel in electronic trading on NYMEX. February futures for Brent oil advanced $0.4 (0.4 percent) to $104.04 per barrel on ICE.
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There were other reasons for the drop of oil. OPEC increased its production ceiling for the first time in three years. China’s manufacturing continued to decline this month, albeit with slower pace. China’s Manufacturing PMI fell to 49.0 in December from 47.7 in November, according to the flash HSBC/Markit estimate.

January futures for crude oil rose $0.01 to $94.96 per barrel, in electronic trading on NYMEX, following yesterday’s 5.2 percent drop to $94.95, the lowest closing price since November 4. Brent traded at $106.14 per barrel as of 4:33 GMT today on ICE after it tumbled during yesterday’s trading session from $109.47 to $104.83.
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Italy auctioned its debt today and the results were good, nothing like the disastrous outcome of the German auction. The confidence of the US consumers improved as was shown by the index that rose from 40.9 in October to 56.0 in November.

The Organization of Petroleum Exporting Countries said that it’s going to keep the quotas at the current level. The protests in Iran may lead to disruption of supply.

January futures for crude oil delivery gained $1.58 to $99.79 per barrel on NYMEX. Brent oil was up from $108.52 to $110.44 per barrel as of 23:02 GMT today on ICE.
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In the short-term, the drive for oil should be the same as for other commodities: Europe and its debt crisis. The persisting problems of the European Union have a negative impact on oil and will likely continue to do so for some time. Market sentiment improved by the end of the week, but, unless some major positive event would occur, it’s not likely traders would retain optimism for long.

In the longer-term, the situation in Middle East and North Africa adds its influence to that of Europe. The ongoing political turmoil should prove positive for oil prices as it’s threatening supply. Libya draws special attention of market participants as it may put downward pressure as its output recovers, but may also drive the prices higher in case the country fails to sufficiently increase production.

US Energy Information Administration estimated that the global consumption of oil will grow from its record-high level of 87.1 million barrels per day in 2010 to 88.2 million barrels per day in 2011 and 89.6 million barrels per day in 2012. The non-OPEC output will rise by 0.4 million barrels per day in 2011 and 1.1 million barrels per day in 2012, while OPEC production will remain largely flat, according to the estimates of the EIA.

The EIA revised its price outlook for the WTI crude oil slightly up to the average of $100 per barrel in 2011 and 2012. Traders should be cautious as volatility remains extremely strong and fundamentals currently aren’t particularly supportive for crude.
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Gold gained on the speculation that the European sovereign-debt crisis may worsen. The European Central Bank maintained its key interest rate unchanged, while the trade balance of Germany and France worsened. Spot price was $1,543.88 per ounce, rising 0.1 percent over the week.

Copper went down on concern that demand will wane as central banks worldwide will increase interest rates to battle inflation. The industrial metal was softer as manufacturing declined in the US and China, two biggest consumers in the world. July contract for delivery of copper fell $0.001 to $4.1075 per pound by 13:16 on COMEX.
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Ali Al-Naimi, Oil Minister of Saudi Arabia, which is the biggest producer of oil, said that his country, together with Kuwait, Qatar and the United Arab Emirates, is ready to supply more crude to markets. Other members were reluctant to support this idea, it seems. Analysts believe that it means some OPEC members have low spare capacity.

Ali Al-Naimi said:

It was one of the worst meetings we’ve ever had. We were unable to reach an agreement.

July contract for crude oil delivery jumped $1.65 to $100.74 per barrel on NYMEX, the highest price since May 31. July for delivery Brent crude rose $1.07 (0.9 percent) to $117.85 per barrel on ICE, reaching the highest level since May 4.
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Gold metals fell as the euro gained, reducing demand for safer assets, after the European Central Bank supported plan for rollover of the Greek bonds. August futures for delivery of gold slipped $3.20 (0.2 percent) to $1,544 on COMEX. July silver futures advanced $0.264 (0.7 percent) to $37.046 per ounce.

Oil jumped on the speculation that increasing production quotas in the Organization of Petroleum Exporting Countries will reduce spare capacity. The US Energy Department revised its forecast for the global usage of oil this year to 88.43 million barrels per day from 88.08 million in May. July delivery for crude oil traded at $99.09 per barrel on NYMEX. July futures for Brent crude delivery rose $2.30 (2 percent) to $116.78 per barrel on ICE.
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Gold gained on worries that the debt situation in Europe, and Greece in particular, may worsen. Greece’s agreed to introduce more austerity measures to receive another portion of the previously agreed bailout. Yet European Union Economic and Monetary Affairs Commissioner Olli Rehn said yesterday that Greece “is facing a default unless there is help”. Gold for immediate delivery traded at $1,543.40 per ounce after rising 0.2 percent yesterday.
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Precious metals, including gold and silver, jumped on the speculation that the high prices for raw materials and the low interest rates will increase inflation pressure, boosting demand for the metals as an inflation hedge. June futures for gold delivery advanced as much as $16.80 (1.2 percent) to $1,472.40 as of 13:42 on COMEX. May futures for silver delivery went up $1.427 (3.5 percent) to $41.664 per ounce. June futures for palladium delivery added $8.95 (1.2 percent) to $774.25 per ounce on NYMEX. July futures for platinum delivery rose $18.40 (1 percent) to $1,795.60 per ounce.
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In the meantime, the unrest rises in Saudi Arabia, the major exporter in the Organization of Petroleum Exporting Countries. The protests are planned on March 11 and March 20, increasing the concern about oil supply. The accelerating inflation supports gold.

April delivery for crude oil gained $1.02 to $105.44 per barrel on NYMEX, the highest price since September 26, 2008. April futures for gold delivery added $5.90 (0.4 percent) to $1,434.50 as of 13:32 on COMEX.
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Gold also profited from the turmoil in Middle East, heading for the best weekly gain since October. Previously the protesters stripped power from the leaders of Tunisia and Egypt. Encouraged by these events the demonstrators came out on streets in Iraq, Iran, Yemen, Oman and even Saudi Arabia, the largest producer of the Organization of Petroleum Exporting Countries. April futures for gold delivery rose 0.2 percent to $1,418.50.
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Even with the increasing consumption al-Naimi feels sure that prices can be kept stable. He said that Saudi Arabia will have spare production capacity of about 4 million barrels per day. The analysts say that such comments suggest that Saudi Arabia isn’t interested in increasing the oil prices and will act to contain them at the current levels.

March delivery for crude oil fell $1.24 to $87.87 per barrel on NYMEX, the lowest settlement since December 16th. March settlement for Brent oil dropped as much as $0.99 (1 percent) to $96.61 per barrel on ICE.
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