AfkInsider Commodities Report: Inventory Climb Takes Toll On Oil

AfkInsider Commodities Report: Inventory Climb Takes Toll On Oil

U.S. crude oil prices dropped to below $102 a barrel last week to record the lowest settlement in more than three months before rallying on hopes of a breakthrough to the fiscal impasse in Washington, which partially shut down the U.S. government Oct. 1.

The rise in oil futures came as equity markets surged in response to a Republican proposal  to offer a six-week extension of U.S. borrowing authority.

The U.S. crude benchmark, West Texas Intermediate (WTI) for delivery in November on the New York Mercantile Exchange (Nymex), settled at $103.01 a barrel on Oct. 10, after finishing at $101.61 on Oct. 9, it weakest price in more than three months.

The price downturn came after the U.S. Energy Information Administration’s (EIA) latest weekly update reported a 6.8 million-barrel increase in U.S. commercial crude inventories for the week ending Oct. 4, far more than the market had expected.  U.S. crude stockpiles rose to 370.5 million barrels the week before last, which the EIA said was above the upper range for this time of year.  The November light sweet crude contract had been trading at around $102 a barrel before the government report was released. However, by midday on Oct. 11, November WTI was once again trading at around $101.76 a barrel.

Brent North Sea crude rallied on geopolitical tensions in Libya which have sparked fresh concerns that oil flows from the country will be disrupted. On Oct. 9, Libya’s prime minister, Ali Zeidan, was seized by a group of former rebels but later freed. Brent crude for November delivery on London’s ICE Futures Europe had climbed to settle at $111.80 a barrel by finish on Oct. 10. Brent was 77 cents down by close the following day, at $111.03. A week earlier, November Brent was trading at around $109 a barrel.

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Gold futures prices fell on the glimmer of hope from Washington, slipping below $1,300 an ounce for the first time since Oct. 1 as investors reduced their holdings in the precious metal. Gold is among assets viewed as “safe-haven” investments in economic or politically-troubled times. Gold for December delivery shed $10.30 to settle at $1,296.90 an ounce on the Comex division of Nymex by Oct. 10.

In contrast to gold, January platinum futures added $13 to reach $1,396 an ounce by close on Oct. 10 while December palladium advanced $8.45 to $712.55 an ounce on Nymex’s Comex division.

Copper prices were trading a shade lower late last week, with the benchmark red metal for delivery in three months on the London Metal Exchange (LME) settling at $7,112.5 a tonne on Oct. 10, down from $7,182 a week earlier.

Cocoa & sugar rally on supply concerns

U.S. cocoa futures climbed to a 23-month high last week while London cocoa futures reached a two-year high as fresh supply concerns spooked the markets. Heavy rains forecast for the second half of October in the two biggest cocoa-producing countries threaten to slow harvesting of already-smaller main crops. The quantity and quality of the beans from Côte d’Ivoire and Ghana’s main crops this season have been impacted adversely by earlier dry weather conditions.

London cocoa futures were also boosted by a stronger third-quarter European grind, an indication of strengthening demand for the commodity. Europe’s third-quarter grind rose 4.7 percent from the same period last year to 331,514 tonnes, up from 316,676 tonnes, the Brussels-based European Cocoa Association said on Oct. 10.

Cocoa for December delivery rose to $2,735 a tonne on the ICE Futures U.S. exchange in New York on Oct. 10, the highest for a most-active contract since early November 2011, before settling at $2,732.50. December cocoa on NYSE Liffe in London climbed to £1,767 a tonne, the highest level for a second-position contract since October 2011.

Raw sugar futures continued to move up last week amid ongoing worries about production losses in Brazil where wet conditions in the country’s top sugar-growing state, São Paulo, are delaying the cane harvest and could impact yields. Raw sugar futures for March delivery on ICE Futures U.S.  reached their strongest levels since mid-March, touching 18.75 cents a pound on Oct. 10.

White, or refined, sugar futures in London  rallied to the highest level in more than three months, with the December contract on Oct. 10 reaching $508.90 a tonne, before settling at $505.55 on NYSE LIffe.

Robusta coffee futures also moved up this week on the back of tight nearby supplies. The November futures contract on NYSE Liffe settled at $1,736 a tonne by Oct. 10, more than $76 up on the three-year of $1,660 a tonne recorded on Sept. 17. However, global supplies of robusta are generally seen to be ample and the market is expected to come under further pressure in anticipation of export shipments picking up again from the biggest robusta producer, Vietnam, later this year. Vietnam is expected to produce a record crop this coffee year, with Macquarie Bank currently forecasting a record 29-million 60-kilogram crop for the country.

Arabica coffee futures were little changed, with the December contract on  ICE Futures U.S. settling at $1.1440 a pound on Oct. 10. The front month had dipped to $1.1105 on Sept. 17, a more than four-year low, weighed down by expectations of bumper global supplies.

The International Coffee Organization (ICO) estimates total world coffee production for the 2012-2013 coffee year (Oct. 1-Sept. 30) just finished at 145.2 million 60-kg bags, a 9.6 percent increase on the previous year, the industry association said in its latest Monthly Coffee Market report on Oct. 7. Of this total, arabica production is estimated to be 88.8 million bags (an 8.4 percent increase on 2011/12) and robusta output 56.4 million bags (up 11.5 percent on the previous year).

Among other softs, U.S. cotton futures fell to their weakest level since Sept. 10, basis the December contract, at midweek, reversing the recent uptrend which culminated in a six-week high reached on Oct. 3.

The December contract touched a low of 83.1 cents a pound on ICE Futures U.S. on Oct. 9, before settling at 83.2 cents. By close on Oct. 10, December cotton settled lower at 83.17 cents. Cotton futures have been supported in recent weeks by concerns about smaller crops in the U.S. and India, and more recently in China, despite a forecast global inventories’ build this cotton year. Cotton futures were further boosted amid worries that Tropical Storm Karen might damage cotton fields in the key U.S. Gulf Coast growing states. Worries over potential damage from the storm lifted December cotton to a six-week high of 87.87 cents a pound Oct. 3. But cotton prices came under pressure as worries about the storm waned.

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.