Oil prices rallied above the $120 a barrel level last week and gold staged an impressive rebound, dispelling some of the negative sentiment towards commodities which has accumulated this summer. On Thursday, US crude prices surged to a high of $122.04, amid rising geopolitical tensions following Russia’s decision to suspend military co-operation activities with Nato. Oil traders remain concerned about the possibility of further disruptions to Azeri crude supplies in spite of the end of the war in Georgia.

Crude oil fell more than $6 a barrel, dropping the most in percentage terms since December 2004, as the U.S. dollar strengthened and BP Plc restored shipments on a Caspian Sea pipeline through Turkey. Energy futures fell as the rising dollar eased demand for commodities as an inflation hedge. The Baku-Tbilisi-Ceyhan pipeline, which moves oil from Azerbaijan through Georgia to Turkey's Mediterranean coast, resumed normal flows today after a fire shut it earlier this month, a Turkish official said.

BP, Europe's second-largest oil company, StatoilHydro ASA and partners cut output at Caspian oil fields following the closure of the 1,768-kilometer (1,100-mile) link on Aug. 5. The pipeline is used to carry oil from Azerbaijan through Georgia to Turkey, where it's loaded onto tankers for U.S. and European markets. BP said loadings are scheduled to begin next week. The shutdown of the BTC pipeline was followed three days later by Russia's invasion of Georgia, which further disrupted Caspian fuel shipments.
Oil prices have also fallen on reduced demand in the U.S., the country responsible for almost a quarter of global oil use. The credit crisis has led to a higher U.S. jobless rate and slower economic growth this year. The Organization of Petroleum Exporting Countries will probably increase oil supply in August by 400,000 barrels a day, or 1.2 percent, as Iran releases crude oil held in storage, according to preliminary estimates from PetroLogistics Ltd. OPEC will next meet to review production targets on Sept. 9 in Vienna. Crude oil rose to $114.59 a barrel on the week, while Brent crude oil rose to $113.92 a barrel.
Gold was up 4.7% last week (to $829.50 an ounce) after sliding 18 percent in the previous five weeks. Gold's gain this week is the biggest since Nov. 23, 2007. Silver futures also rose to $13.555 an ounce. Before Friday, silver fell 7.2% this year while gold gained 0.1%.

Base metals traders are turning their thoughts to Chinese demand post the Olympics and asking whether pent up activity could have a significant impact on stocks held in LME warehouses. Zinc jumped 9% to $1,825 a tonne last week, helped by news of production cuts that forced hedge funds to buy back short positions. Nickel leapt 11.5% at $20,850 a tonne, also helped by short closing.

US stocks ended a volatile week lower as investors continued to fret about the health of the financial sector, particularly mortgage giants Fannie Mae and Freddie Mac, and responded to a mixed set of earnings news and economic data. Stocks staged a rally on Friday after a speech by Federal Reserve chairman Ben Bernanke and a fall in oil prices, but remained in negative territory for the week. In spite of the rally on Friday the S&P 500 index was down 0.5% for the week at 1,292.19 and the Nasdaq Composite was 1.5% lower at 2,414.71. The Dow Jones Industrial Average ended the week 0.3% lower at 11,627.49.

Friday’s stock market rally came after Mr Bernanke indicated the Fed should be able to maintain its low federal funds target rate for some time, as the recent drop in commodity prices coupled with reduced demand for resources due to the economic downturn should reduce the threat of inflation. Fannie Mae shares fell 37% over the course of the week and Freddie Mac shares were down 51% at $2.81 as speculation mounted that the embattled mortgage lenders would have to be bailed out by the government. The crisis surrounding Fannie and Freddie seemed to ease slightly on Thursday as both the equity and debt of the two US mortgage financiers rallied, but concerns about their long-term health remained.

Lehman Brothers was also in sharp focus, with rumours rife that it could soon be a takeover target. The investment bank saw its shares slump early in the week before shooting up more than 15% on Friday on dealing room chatter in New York linking it with bid interest from Korea Development Bank. KDB went on to acknowledge it had been in talks with Lehman over the potential sale of a major stake in the company. The bank continues to be surrounded by worries about its ability to withstand losses and writedowns related to the credit crisis. Its shares fell 11% on the week. Lehman’s problems brought other Wall Street Banks into focus. Goldman Sachs ended the week down 2.1%, Morgan Stanley was down 5% while Citigroup fell 2.2% and Merrill Lynch was 4.1% lower. The S&P investment banking index fell 3.3% and the S&P financials index ended 3.1% down.

In earnings news, fast food chain Burger King Holdings posted a 42% rise in fiscal fourth-quarter net income as customer traffic hit a 10-year high, but its shares still fell 9.1%. Barnes & Noble fell 5.3% after the book vendor cut its full-year ­forecast and posted lower quarterly earnings. HJ Heinz, the food maker, reported a rise of 11% in fiscal first-quarter profit thanks to double-digit sales growth. Robust laptop sales helped push Dow component Hewlett-Packard to a strong performance in the third quarter, in spite of the tough economic climate. HP rose 3.2% after the company reported sales and profits that beat Wall Street forecasts after the market closed on Tuesday.

European stocks rose the most in two weeks as investors speculated takeovers may increase and a drop in oil prices boosted airlines and carmakers. HBOS Plc led banks higher, jumping 6.3%, after Korea Development Bank said it's ``considering'' an investment in Lehman Brothers Holdings Inc. Hochtief AG rallied 8.5% as Manager Magazin said Germany's biggest builder may be broken up. Benfield Group Ltd. jumped 27% after Aon Corp., the world's biggest insurance broker, offered $1.6 billion for the U.K. company. PSA Peugeot Citroen and Deutsche Lufthansa AG rallied at least 3% as oil retreated by more than $3 a barrel. HBOS, the U.K.'s biggest home-loan provider, added 6.3%. UBS AG, the European bank hardest hit by the subprime contagion, rose 4.8%. TNT jumped 6.9%. UPS and Europe's second-biggest express-delivery service may meet to work out a deal over the weekend, with the U.S. company offering 34 euros to 38 euros a share, the Times said Friday, without citing anyone. Peugeot, Europe's second-biggest carmaker, increased 4.4%. Nokian Renkaat Oyj, the Nordic region's biggest tiremaker, added 4.4%. Lufthansa, Europe's second-largest airline, climbed 3%.
Japan stocks fell, capping the Nikkei 225 Stock Average's biggest weekly loss in two months, on concern surging oil prices and rising credit costs will reduce earnings at manufacturers and financial companies. Sumitomo Rubber Industries Ltd. lost 2.7%, leading a decline by makers of rubber products, after crude jumped the most in 11 weeks. Sumitomo Mitsui Financial Group Inc. sank 3.6% as Citigroup Inc. said U.S. banks will post more writedowns. Kawasaki Kisen Kaisha Ltd. led shipping lines lower after Mizuho Securities Co. cut its rating. Inpex Holdings Co., Japan's biggest oil explorer, climbed 2.2%, the highest since July 15. Mitsubishi Corp. added 3.2%, while smaller rival Mitsui & Co. jumped 2.6%. Sumitomo Mitsui, Japan's third-biggest listed bank by assets, slid, while market leader Mitsubishi UFJ Financial Group Inc. retreated 2.1%. Consumer lender Aiful Corp. plunged 8.6%, the lowest on record and the second-worst performer on the MSCI World Index. Kawasaki Kisen, Japan's third-largest shipping company, fell 3.8%, while Mitsui O.S.K. Lines Ltd., the second biggest, dropped 2%.

The dollar’s sharp rally ran out of steam last week as traders booked profits after a strong run that had seen it rise more than 4% since the start of the month. The dollar index, which tracks its value against a basket of six major currencies, stormed to a seven-month high on Tuesday. The dollar also hit a six-month high of $1.4628 against the euro on Tuesday but struggled to maintain its gains later in the week.

Nevertheless, the dollar lost 0.9% to $1.4820 against the euro over the week, fell 0.5% to Y109.95 against the yen and dropped 0.2% to SFr1.0950 against the Swiss franc. The dollar also underperformed against commodity-driven currencies, losing 1.2% to C$1.0458 against the Canadian dollar on the week, falling 0.4% to $0.8701 against the Australian dollar and dropping 1% to $0.7130 against the New Zealand dollar.

Federal Reserve Chairman Ben S. Bernanke said Friday that a drop in commodities, a stable dollar and slowing growth should stem inflation. He added in a speech in Jackson Hole, Wyoming, that the inflation outlook remains ``highly uncertain'' and the Fed ``is committed to achieving medium-term price stability and will act as necessary'' to achieve that goal.

Euro was supported by stronger-than-expected ZEW index, that rebounded to -55,5 in Aug after 16-years low in July. But the 1991 года уровня в июле. The euro partly weakened Friday as the European Union statistics office said that industrial orders in the 15 countries that use the currency fell 7.4% from a year earlier, the most since December 2001.

The pound dropped for a fifth week against the dollar, its longest losing streak since February 2006, after a report showed British growth stagnated in the second quarter. Sterling fell 0.7% against the dollar last week to $1.8527 and touched $1.8505 Thursday, the lowest level since July 2006. The U.K.'s second-quarter gross domestic product was unchanged from the first quarter, ending the country's longest stretch of economic expansion in more than a century. Against the euro, the pound fell 1.4%.