SINGAPORE: Oil, gold and grains surged on Tuesday as investors worried that violence in Libya could spill into top oil producers in North Africa and the Middle East, but metals suffered from a rush out of riskier assets.
US crude futures hit a 2-1/2 year high on Tuesday on concern the violence could cut more of the OPEC-member’s output.
"The market is very nervous over news of violence in Libya, and that’s driving prices," said Yinxi Yu, a commodities analyst with Barclays Capital.
"The situation threatens to blow out in the next few days, and it looks like the uncertainty in the region is not going to be resolved anytime soon."
Diplomats at Libya’s mission to the United Nations in New York sided with the revolt against their country’s leader and called on the Libyan army to help overthrow "the tyrant Muammar Gaddafi."
As deadly clashes convulsed Libya’s biggest cities, one international oil firm shut down as much as 100,000 barrels per day (bpd) of output, or about 6 percent of output in Africa’s third-largest producer.
Other big oil firms said they were withdrawing staff as Qaddafi fought to hang on to power and dozens were reported killed in the capital, Tripoli.
US crude for March delivery, which expires on Tuesday, touched its highest since October 2008 at $94.49 a barrel. The contract trimmed gains later to trade at $92.96 a barrel, still up more than $1 from late Monday.
At 1030 GMT, Brent crude oil futures for April delivery were up $1.12 to $106.86, after earlier touching $108.57, while US crude for April delivery was up at $96.68 as investors and traders became increasingly nervous about contagion.
Industrialized countries will consider a coordinated release of oil from stocks to meet any supply disruption stemming from the political turmoil in the Middle East, Fatih Birol, chief economist of the International Energy Agency, said.
Gold slipped from a seven-week high, but sentiment was still underpinned by concerns over Libya and uncertain oil prices, while silver jumped to its strongest since 1980 above $34 an ounce.
High oil prices fed fears of inflation, one of the main concerns of investors, who are otherwise in a bullish mood on expectations the global economic recovery is now sustainable.
Spot gold fell $5 an ounce to $1,400.95 by 0548 GMT. It had risen as high as $1,410.65 as protests that have unseated leaders in Egypt and Tunisia spread to neighboring states, including Libya.
Qaddafi signaled his defiance in the face of a mounting revolt against his 41-year rule, making a brief appearance on state television and denying he had fled Libya.
"I think the current situation there is really akin to a keg of dynamite," said Ong Yin Ling, investment analyst at Phillip Futures in Singapore.
"Whether Qaddafi will be toppled or whether we will witness a revolution, I think the final outcome is still uncertain. But the situation is likely to get worse before it gets better. Going forward (gold) could still remain supported due to the crisis."
In nearby Egypt, a Suez Canal official said two Iranian ships entered the canal on Tuesday and were heading for the Mediterranean, a move sure to anger Israel.
Among grains, US corn futures rose 0.6 percent while soy and wheat rose 0.5 percent, buoyed by stronger crude oil prices.
"Pretty much all commodities, including grains, are up this morning and oil is certainly the leader," said Brett Cooper, senior manager for markets at F C Stone Australia.
Crude oil often directs the movement in corn and soybean markets for their use in making alternative fuels, which compete with petroleum products.
Corn rose more than 2 percent in early trade, but lost some of its gains on a broad sell-off in industrial metals, after investors were unnerved by a fall of more than two percent in China’s benchmark stock market index.
In Shanghai, zinc fell more than six percent in its biggest daily drop in three years, leading a broad sell-off in riskier assets.
Shanghai’s most-active zinc futures contract fell as much as 6.2 percent to 19,150 yuan a ton, off a three-month high of 20,560 yuan earlier. It last posted such a daily loss in February 2008. It closed midday down 3.7 percent to 19,665 yuan.
Three-month zinc on the London Metal Exchange dropped nearly three percent at $2,520.
Copper prices held up well, with LME copper down just 0.1 percent at $9,800 a ton.
"Copper is feeling some impact from the Middle East unrest," said a Shanghai-based trader, "but since it doesn’t threaten to change the fundamentals, the impact is unlikely to be profound."
In other markets, the dollar edged up against a basket of major currencies, while the Nikkei fell for the first time in seven days, moving away from its highest levels in more than nine months, as the Middle East turmoil triggered profit-taking in overbought blue-chip shares. –Additional reporting by Francis Kan, Lewa Pardomuan, Rujun Shen and Naveen Thukral.
