AfkInsider Commodities Report: U.S. Crude Slips On Demand Fears

AfkInsider Commodities Report: U.S. Crude Slips On Demand Fears

Oil prices continued to slide this week, with U.S. crude futures dropping below $97 a barrel by midweek.

U.S. Department of Energy data indicated another big climb in the country’s crude inventories. Coupled with weak U.S. jobs data, this sparked concerns about the country’s oil demand. The U.S. is the world’s largest oil consumer.

U.S. benchmark West Texas Intermediate (WTI) for delivery in December slipped $1.44 or 1.46 percent on the New York Mercantile Exchange (Nymex) to $96.86 a barrel by close on Oct. 23. This was the lowest settlement in nearly four months. Brent North Sea crude – the European benchmark – for December fell $2.17 to $107.80 a barrel. Brent crude for December delivery had ended last week at $109.94, while December WTI had settled at $101.11 a barrel.

Burgeoning U.S. crude stockpiles have pushed the spread between the two oil contracts to its widest since April. Earlier this week, the Brent/WTI gap broadened to $12 a barrel. At close on Oct. 23, the gap had narrowed slightly to $10.94.

The latest U.S. government department’s Energy Information Administration (EIA) weekly report showed that U.S.  crude stocks had risen by 5.2 million barrels to 379.8 million barrels in the week ending Oct. 18. This was more than three times market expectations, and the latest in several weeks of increases.

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The delayed release of U.S. jobs data this week showed nonfarm payrolls rose by 148,000 workers in September, less than expected. The lower-than-expected jobs suggests weak economic momentum, and has led the investment community to believe the U.S. Federal Reserve will keep its $85-billion-a-month bond-buying program intact into 2014.

Gold moved to its highest in over three weeks on Oct. 22 following the release of the U.S. non-farm jobs data and hopes that the Fed will maintain its economic stimulus efforts. The central bank’s monetary stimulus program has supported gold prices because investors have sought out the precious metal as a hedge from the inflation that may follow the program.

The most actively traded gold contract, for December delivery, touched $1,345 an ounce before settling at $1,342.60 on the Comex division of Nymex on Oct. 22. However, the precious metal fell back the next day as some investors sold holdings to cash in on the previous day’s gains. December gold had shed $8.6 an ounce by close at $1,334 on Oct. 23.

Physical demand for gold is slowing, with growing caution on the level of China’s demand for the yellow metal. China is second-biggest consumer of gold, after India.

“Physical demand has slowed over the past few days, which could drain some support for gold,” Standard Bank Head of Research Walter de Wet said in the bank’s daily commodities report on Oct. 23. He added that gold demand from China seems to have eased already. De Wet, however, expects demand to improve should gold fall below $1,300 an ounce.

Platinum  futures have risen to their highest in more than a month, and palladium futures to a more-than seven-week high, following the shooting and killing of a mining union official near Lomin’s Marikana mine in South Africa on Oct. 18. Marikana was the site of clashes between striking workers and police last year that ignited labor unrest across the country. South Africa is the world’s largest platinum-producing country, and is the second largest producer of palladium.

Platinum for delivery in January had moved up to settle at $1,439.60 an ounce on Nymex by finish at midweek while December palladium closed at $746.10.

Palladium is the only precious metal which is up in 2013, largely on expectations for a supply/demand deficit. Analysts say they see potential for further price gains in the months ahead, but Standard Bank says it would expect resistance with palladium above $750 an ounce.

“Once again, we would look for Russian exports to rise when palladium moves above $750. However, auto catalyst demand for palladium still seems relatively robust, which should see support for palladium below $670,” Standard Bank’s de Wet said in the bank’s commodities daily report on Oct. 21.

Worries about credit tightening in China and how it could hit near-term demand for copper and other industrial metals were stalking the metals market again this week and more than offset further positive manufacturing growth in the country. China accounts for around 40 percent of global copper demand and is a big consumer of many other industrial metals. An unexpected setback in business growth in the Eurozone also put pressure on copper and other industrial metals markets.

Copper for delivery in three months time on the London Metal Exchange (LME) touched a low of $7,153 a tonne during trading on Oct. 24, its weakest level since Oct. 14. It had closed at $7,171 a tonne the previous day, some 2.2 percent down on Oct. 22.

At the end of last week, the red metal on the LME had edged up to settle at $7,245 a tonne, basis the three-month price, a $15 gain on the day, after official China government figures showed the country’s GDP had grown in the third quarter – its fastest pace this year. China’s GDP grew 7.8 percent in the three months ending Sept. 30. This compares with 7.5 percent in the second quarter.

However, analysts say there are now concerns on whether the recent improvement in China’s economy is going to fade.

Raw sugar jumps on port fire

Among the soft commodities, raw sugar prices on the  ICE Futures U.S. exchange moved up to a one-year high at the end of last week after a fire in Santos, Brazil’s biggest port, damaged six warehouses owned by the country’s largest sugar and ethanol trader, Copersucar. The São Paulo-based trader said the fire had destroyed nearly 180,000 tonnes of raw sugar. This week, Copersucar was reported to have declared force majeure to third-party exporters of sugar with contracts to ship through its Santos terminal, but this could not be confirmed by press time. The trading company has said the terminal’s shiploaders and other sugar-loading equipment are undamaged but it has not said how long it will take to rebuild its export facility. Copersucar in June completed an expansion of its Santos terminal, doubling capacity to 10 million tonnes a year.

Analysts said removal of the Copersucar terminal capacity will leave a major hole in Brazil’s sugar exporting capacity, believed to be about 3 million tonnes a month.

Raw sugar for delivery in March jumped 6.1 percent to 20.16 cents a pound on ICE Futures U.S. following first reports of the fire, the highest for the contract in a year. March closed the day’s trading at $19.50 a pound, up 2.63 percent on the day. By midweek, raw sugar was trading lower as traders and the market continued to access the consequences of the Santos fire, with the March contract on ICE Futures settling at 19.26 cents a pound on Oct. 23.

Meanwhile, December refined or white sugar on NYSE Liffe in London, closed $7.50 up or 1.4 percent higher at $513.80 a tonne at the end of last week. By midweek, it had slipped to $509.10 a tonne by close on Oct. 23.

Meanwhile, cocoa futures in both New York and London fell as investors took profits. U.S. cocoa futures settled lower by midweek after the December contract reached a fresh two-year high of $2,780 a tonne on ICE Futures U.S. on Oct. 22. December cocoa finished Oct. 23 at $2,709.50. Liffe March cocoa futures were also trading lower at midweek at around £1,700 a tonne, down from £1,721 a tonne by close at the end of last week

Analysts said the market had been due for a correction. U.S. futures prices have risen almost 30 percent and London cocoa futures around 22 percent in the past four months on supply concerns and ideas of growing demand for the chief chocolate-making ingredient.

Coffee’s woes continued this week, with December arabica futures on ICE Futures recording a four-and-a-half year low at midweek amid renewed selling sparked by burgeoning global supplies. Arabica coffee for delivery in December touched a low of $1.1050 a pound on Oct. 23, the lowest for the spot contract since March 2009, before settling at $1.1063.

Robusta coffee futures in London finished marginally up at midweek after touching a three-year low for three straight days. Like arabica, the robusta market is weighed down by ample supplies, with top grower Vietnam expected to produce a record crop this coffee year. Harvesting is under way in the country and export shipments will start to gather pace late next month. January robusta coffee on NYSE Liffe closed up $7 at $1,586 a tonne on Oct. 23, after earlier touching $1,572, the lowest level since September 2010.

Cotton futures this week were trading at the lowest level since January as favorable weather conditions in key cotton-growing states in the U.S. looked likely to hasten the pace of the harvest. On ICE Futures U.S., December cotton hit a low of 78.77 cents a pound on Oct. 23, the weakest level since late January. The December contract settled at 80.69 cents a pound, 2.13 percent lower on the day.

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