Energy, Metals Lead Commodity Slump as Economic Outlook Dims

By Millie Munshi

Oct. 15 (Bloomberg) -- Tumbling prices for energy, metals and grains led commodities to their lowest since February 2005 as the prospect of a global recession dimmed the outlook for raw-material demand.

Crude oil, down 5.2 percent, dipped below $75 a barrel for the first time in more than a year. Copper fell 7.7 percent, soybeans reached a 13-month low and cotton touched the lowest price since May 2007. The Reuters/Jefferies CRB Index of 19 commodities fell 4.5 percent to 283.04, the lowest since Feb. 10, 2005.

Federal Reserve Bank of San Francisco President Janet Yellen said late yesterday the U.S. is in a recession, and the government today reported retail sales in September dropped by the most in three years. The CRB index is down 40 percent from a record in July as falling equities, reduced lending and slowdowns in manufacturing and construction signaled a drop in demand.

``The debate over whether or not the world will be in a recession is over -- we're clearly in a recession,'' said Michael Pento, who helps oversee $1.5 billion at Delta Global Advisors in Holmdel, New Jersey. ``This is going to mean much, much lower prices for the cyclical commodities.''

Commodity shipping rates also plunged to the lowest in more than five years today as a lack of trade finance left cargoes stranded and the global economic slowdown reduced consumption.

Crude oil for November delivery fell $4.09 to $74.54 a barrel on the New York Mercantile Exchange, the lowest settlement price since Aug. 31, 2007. The most-active contract traded as low as 73.55.


Cutting Forecasts

The Organization of Petroleum Exporting Countries, supplier of more than 40 percent of the world's oil, cut its 2009 demand forecast for a second month because of ``dramatically worsening'' conditions in financial markets.

Banks including Goldman Sachs Group Inc. and JPMorgan Chase & Co. cut their price forecasts for commodities including oil and copper this week by as much as 56 percent, citing a larger-than-expected economic slowdown.

Confidence in the global economy plunged in October after a deepening freeze in credit markets increased the chances of a recession, a survey of Bloomberg users on six continents showed.

``In a relatively short period of time, the economic scenario has moved from a somewhat-contained, developed-country downturn to a deeper and more synchronized global economic slowdown,'' Michael Jansen, a London-based analyst at JPMorgan Securities Ltd., said in a report today. There will be ``weaker-than-anticipated demand.''

Haven Asset

Gold gained as much as 2.4 percent today, as escalating financial turmoil boosted the appeal of the precious metal as a haven asset. The metal gained 3.1 percent last week as the CRB plunged 11 percent and the Dow Jones Industrial Average tumbled 18 percent.

``Gold is the only safe bet now,'' Pento of Delta Global said. ``Precious metals will hold up much better than any other investment. I expect gold to go much higher and make new all- time highs in 2009.''

Gold futures for December delivery finished little changed today, down 50 cents at $839 an ounce on the Comex division of the New York Mercantile Exchange. Earlier, the most-active contract rose as high as $859.20 The price touched a record $1,033.90 on March 17.

To contact the reporter on this story: Millie Munshi in New York at mmunshi@bloomberg.net