Goldman Sachs also said a possible peaceful resolution to the civil war gripping oil-producer Libya, could lower prices. The bank's call contributed to a sharp plunge in the oil price overnight. WTI crude oil for May delivery fell $US3.67 to $US106.25 a barrel on the New York Mercantile Exchange, the lowest settlement since March 30. The International Monetary Fund also warned this week of the risk that a sharp pullback in commodities poses to global growth. The closely watched Reuters-Jefferies basket of commodities price index fell almost 2 per cent over night to 359, after rising almost 80 per cent since the March 2009, after markets began to climb back after the financial crisis. The US Federal Reserve's second round of quantitative easing - in effect printing money to boost the economy - has weakened the US dollar, supercharging commodities prices, which are denominated in US dollars. The Reuters Jefferies index has risen nearly 40 per cent since August when QE2 was first flagged. “The challenge for many emerging and some developing economies is to ensure that present boom-like conditions do not develop into overheating over the coming year,” the IMF said.

Since 2003, the commodities boom has underpinned Australia’s growth, bolstering companies and employees’ confidence, which in turn translated into increade borrowing and spending. After wavering for several months, a key measure of Australian consumer confidence bounced modestly in April as people grew more optimistic on the economy for the year ahead and felt better placed to buy major household items. The Westpac/Melbourne Institute's index of consumer sentiment rose 1.2 per cent to 105.3. In addition to advising clients to exit bets that oil will continue to rise, Goldman Sachs said the impact of higher oil prices may turn down values in copper and platinum. “(We) believe that copper and platinum will face near-term headwinds as higher oil prices potentially translate into a negative demand shock for the metals and as these commodities are exposed to supply chain problems resulting from the earthquakes in Japan,” Goldman Sachs said. “This is particularly the case for platinum given its large exposure to global automobile production,” the note said. “Copper also remains vulnerable to slowing observed demand as high prices and tight credit motivate tight inventory management from key consumer China, which tempers the inventory draw we had expected and the risk of price spikes.”

Robert Brooker, NAB head of Australian economics and commodities, said that fundamentals, including the industrialization of Asia, had supported the run-up in oil and commodities prices in recent years, but left Australia exposed to any sudden changes in demand or pricing. “Our economy is linked both strongly to prospective growth in China and its impact on commodities prices,” said Mr Brooker. “But at the same time it makes us more sensitive to commodities price movements.” A 10 per cent drop in commodities prices would flow through to Australians’ income through wealth and impact “their decisions on how much they going to spend,” said Mr Brooker. It could also likely influence companies’ willingness to invest. The Goldman Sachs note contained no prediction on iron ore or coal. Goldman Sachs, the world’s largest commodities trader, correctly predicted oil would lift to $US100 a barrel when it was trading at $US60. Goldman Sachs is believed by some to have enough influence in the commodities market to make its own research self-fulfilling.

Australia’s petrol is priced in Singapore Tapis crude, which stands at $US131, down more than $US1 overnight. ANZ commodities economist Mark Pervan said oil prices may fall in the short term but expects the strengthening US economy to lift prices in the second half of the year. Copper prices may slip in the near-term because of the slowing pace of growth for China’s economy and the stockpiling there, he said, however that would be temporary. “We could see second half being all systems go and the emergence of a tighter supply,” he said. The price of iron ore, Australia’s top commodity export, may hit a top in the near term as China’s steel industry struggles with the prices at their current levels, said Mr Pervan, but there is no fall in demand expected.

For coal, the devastation in Japan is expected to grow demand in that nation from an area of about zero growth in recent years to 8-10 per cent growth in two to three years. “Japan comes through as a major growth destination for demand,” he said. czappone@fairfax.com.au with wires

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