AfkInsider Commodities Report: Oil Moves Higher, Positive U.S., China Data Boost Copper

AfkInsider Commodities Report: Oil Moves Higher, Positive U.S., China Data Boost Copper

Following last week’s losses, oil prices moved higher this week, boosted by some positive U.S. economic news and signals from the U.S. Federal Reserve that a paring in U.S. stimulus measures could be delayed.

Supply outages also supported the international benchmark Brent North Sea crude. Brent crude for delivery in September touched $109.60 a barrel in London Aug. 1, finishing a tad lower at $109.41. This compares to the July 26 finish of $107.17.

The U.S. benchmark, West Texas Intermediate, for September delivery on the New York Mercantile Exchange (Nymex) climbed to $107.78 a barrel by midday Aug. 1. It finished Aug. 2 trading at $104.70 a barrel.

On July 31, the U.S Federal Reserve said the U.S. economy was continuing to recover but still remained in need of support. It said it would continue to support an $85 billion-a-month bond-buying program.  The Fed statement followed U.S. Commerce Department data showing that the country’s economy grew at a 1.7 percent annual rate in the second quarter, more than had been expected by analysts but still a sub-optimal rate. This was coupled by better-than-expected data from payroll processor Automatic Data Processing Inc., which reported private-sector jobs in the U.S.  increased by 200,000 in July.

An unexpected rise in U.S. crude inventories in the week ending July 26 had little impact on oil futures prices, with the market choosing to focus on a tightening in oil stockpiles at the Cushing, Okla. trading hub and the physical delivery point for the Nymex WTI crude futures contract. The U.S. Energy Information Administration (EIA) on July 31 had reported an unanticipated rise in U.S. oil stockpiles, with inventories up 400,000 barrels last week, reversing five weeks of decline.

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Supply disruptions in Libya and Iraq, and reduced flows from the key Forties North Sea operation on account of annual maintenance are providing further support for the Brent crude price.

Copper and other base metals were also higher on the positive U.S. economic news and Fed signals. China, which accounts for about 40 percent of global copper demand and is an important consumer of other base metals, provided some upbeat news too. The Chinese government’s official Purchasing Managers’ Index (PMI) of manufacturing activity rose to 50.3 in July from 50.1 in June. However this contrasted with the latest data from a separate manufacturing survey by HSBC. The HSBC Purchasing Managers’ Index showed a drop to 47.7 in July, an 11-month low, from 48.2 in June, in line with a preliminary figure released last week.

Three-month copper on the London Metal Exchange (LME) touched $7,044 a tonne in early trading Aug. 1, the strongest since July 24, and up from the previous day’s close of $6,880.

But gold futures remained lower this week, slipping to $1,313 an ounce basis the most actively traded contract, for December delivery, on the Comex division of Nymex in early trading Aug. 1.

New York-traded raw sugar futures climbed to four-week highs early last week amid worries that rain-fuelled delays would slow the harvest and delay shipments in leading producer Brazil, before falling back as dry weather returned to the country’s growing regions. Raw sugar for October delivery on ICE Futures U.S. started moving up on July 24 and on July 31 touched 16.98 cents a pound, the highest for the most actively traded contract since July 1. But with the return of dry weather to the top grower’s main sugar-producing regions, futures prices began to retreat. At midday Aug. 1, October raw sugar was trading at 16.84 cents a pound. Raw sugar prices are currently down about 25 percent since this time last year amid a global supply surplus that has weighed on prices.

White or refined sugar futures prices continued to move up on concern that supplies that can be delivered will be limited when the October futures expires on London’s NYSE Liffe. The October contract on Liffe touched $494.05 a tonne on Aug. 1 before retreating to $488.30 in late trading, but still over $8 up on July 26 closing at $479.85 a tonne.

Robusta coffee futures were in retreat this week, following a rally July 26 on the back of an unexpected sharp drawdown in London’s NYSE Liffe exchange-certified stocks. This week’s losses, however, were kept in check by a lack of selling of remaining stocks from top producer Vietnam ahead of the upcoming harvest. Liffe September robusta had fallen to $1,866 a tonne in late trading Aug. 1, its weakest level since mid-July.

The September robusta contract had climbed to $1,954 a tonne, before settling at $1,921 July 26. Robusta stocks in warehouses certified by NYSE Liffe exchange fell 15.1 percent – some 17,500 tonnes – in the two weeks to July 22, exchange data showed. The drawdown took stocks to 98,250 tonnes on July 25, the lowest since May 2009.

Arabica coffee futures initially benefited after Liffe data showed the big drawdown in robusta exchange stocks, before settling 2 percent down on the day at $1.2225. By Aug. 1, September arabica had fallen further, touching a low of $1.1548 a pound before recovering a tad to $1.1563 by midday.

Two weeks ago, arabica futures prices had rallied to a near two-month high of $1.34 a pound on frost threats in some of leading producing country Brazil’s coffee-growing regions. Arabica prices are expected to remain under pressure from Brazil’s record off-year crop which currently is being harvested.

Cocoa futures prices were also trading lower. However, concerns that dry weather in Ivory Coast and Ghana will affect those countries’ 2013-14 main crops (harvested in October) are providing a floor for prices. The market tone is being helped too by a more positive demand picture following the better-than-expected data on second-quarter cocoa grinding volumes from North America (up 12 percent year-on-year)  and Asia ( up 2 percent but analysts and traders had expected grindings to have fallen).  Showing a 6 percent increase year-on-year, second-quarter European grindings data were in line with analysts’ expectations, but were the first year-on-year increase since the fourth quarter of 2011.

Cocoa for September delivery on London’s NYSE Liffe on Aug. 1 touched a high of £1,587 a tonne while September cocoa on ICE Futures U.S. touched a high of $2,297.50 in early trading.

While care has been taken to ensure that the information contained in this report is accurate, it is supplied without guarantee. The author, Lynda Davies, can accept no responsibility for any errors or any consequence arising from the information provided.