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AfkInsider Commodities Report: Syrian Crisis Lifts Crude And Gold Prices

AfkInsider Commodities Report: Syrian Crisis Lifts Crude And Gold Prices

U.S. crude prices soared to their highest level in two years amid Western threats of a military response to reports of Syria’s use of chemical weapons and fears that Syria’s conflict could spread.

Brent North Sea oil hit its highest price in six months. Oil prices have been moving up in recent weeks on increasing anxiety that violent civil unrest in Egypt would disrupt crude shipments through the Suez Canal and Sumed Pipeline, both strategic routes for Persian Gulf shipments to Europe and North America. Various supply disruptions elsewhere, including in Libya, have also supported crude prices.

The benchmark New York contract, West Texas Intermediate (WTI) crude for October delivery on Nymex, climbed to a two-year high on Aug. 28, touching $112 a barrel before settling at $110.10. On London’s ICE Futures Europe, Brent crude settled at $116.61 a barrel on Aug. 28, up $5.88 since the start of the week. Both benchmarks were trading slightly off these highs the following day, with October WTI trading at $109.49 at midday and Brent $116.45 a barrel in late trade.

Gold also benefited as investors sought a safe-haven investment amid the rising political tensions in the Middle East and on renewed uncertainty about the outlook for U.S. monetary policy. The most actively traded contract – for December delivery – on the Comex division of Nymex touched a 15-week high of $1,420.20 an ounce on Aug. 27, its highest level since May 14. December gold subsequently let go of some of these gains and was trading at $1,406.50 an ounce at midday on Aug. 29.

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Base metals were mostly lower this week as markets reacted to Middle East concerns and to disappointing data on U.S. new home sales. The latest data from  the U.S. Commerce Department showed the steepest drop in U.S. new home sales in three years in July. Recent encouraging economic data from China, the U.S. and the Eurozone sparked hopes for stronger demand for copper and many other industrial metals. But the outlook for metals demand remains tempered by ongoing worries about the timing of the U.S. Federal Reserve tapering off its economic stimulus package, as well as lingering doubts over the strength of China’s economy.

At the afternoon kerb close on Aug. 28, three-month copper on the London Metal Exchange (LME) was down a further $15 on the day at $7,316 a tonne. The three-month metal had climbed to a 10-week high of $7,420 in mid-August amid encouraging manufacturing data from China and the Eurozone.

Softs futures weaker

Among the soft commodities, arabica coffee prices fell again this week amid abundant global supplies and further falls in the value of top producer and exporter Brazil’s domestic currency against the U.S. dollar which is encouraging more producer selling. The Brazilian real has weakened by about 20 percent so far this year. Arabica coffee for December delivery on ICE Futures U.S. touched a low of $1.1668 a pound on Aug. 27, but had clawed back some ground to settle at $1.1845 a pound on Aug. 28 before slipping back to $1.1713 at midday on Aug. 29. December arabica had hit a four-and-a-half-year low of $1.1547 a pound at the start of August.

Robusta coffee futures fell to a two-month low this week despite concerns about low global inventories. Traders expect global robusta stocks to drop to their lowest level since May 2000 towards the end of this year before the main shipments from top producer Vietnam’s next harvest – which starts in October – get underway in December. Robusta coffee for November delivery on NYSE Liffe in London touched $1,752 a tonne on Aug. 28, the lowest since July 1.

A global surplus of sugar is keeping futures prices of the sweetener under pressure, with further declines seen this week. The October raw sugar contract on New York’s ICE Futures settled at $16.45 pound on Aug. 28. The International Sugar Organisation (ISO) in its latest quarterly market outlook released last week, projected a world statistical surplus of 4.502 million tonnes in the 2013-2014 sugar year (Oct. 1-Sept. 30), based on projected market fundamentals. While this marks a significant decrease on the current sugar year’s estimated surplus of 10.261 million tonnes, this is the fourth year of global surpluses; 2011-2012 saw an estimated 6.165 million tonnes surplus and 2010-2011 saw a 1.321 million tonne-surplus, according to ISO estimates. The latest report marks the ISO’s first full assessment of the world sugar balance for the upcoming 2013-2014 crop cycle.

Raw sugar futures hit a three-year low of 15.43 cents a pound in mid-July and while prices showed some signs of recovery earlier this month amid concerns about frost-related damage to leading producer and exporter Brazil’s cane crop (the October contract touched a seven-week high of 17.29 cents mid-month), they have since fallen back.

ISO in its quarterly market outlook warned of the possibility of further price losses during the 2013-2014 season.

“The world surplus (of sugar) is expected to decrease considerably in 2013-2014, but it nevertheless implies a further rise in global sugar stock levels. It seems that a lower global surplus per se cannot be treated as a price supportive factor,” the organization said.

White sugar for October delivery on London’s NYSE Liffe was also down further at midweek to settle at $478.45 a tonne on Aug. 28, down more than $5 on a week ago.

The lack of rainfall in top cocoa-growing regions of West Africa and concerns about its impact on the upcoming main crop harvest which starts in October continue to support cocoa futures prices, although this week saw some consolidation below the eight and 10-months highs recorded respectively in New York and London last week. Futures prices have moved up sharply this month on concerns that the dry weather will hurt both the quantity and the quality of beans harvested. Around 70 percent of the world’s cocoa output is produced in four West African countries: Côte d’Ivoire, Ghana, Nigeria and Cameroon, with 60 percent of world output coming from Côte d’Ivoire and Ghana, according to the International Cocoa Organisation (ICCO).

Cocoa for December delivery on ICE Futures U.S. ended at $2,480.50 a tonne on Aug. 28, and was trading marginally lower at midday on Aug. 29 at $2,476 a tonne.

Cotton futures continued on their recent downward trend amid signs of improving global crop prospects. The December contract on ICE Futures U.S. settled at 83.75 cents a pound on Aug. 28, the weakest level since July 17.

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.