AFKI Commodities Report: Will U.S. Become World’s Top Crude Producer?

AFKI Commodities Report: Will U.S. Become World’s Top Crude Producer?

North Sea Brent crude, the European crude benchmark, initially eased back from a two-week high after Iran and six major countries began a fresh round of negotiations on the its disputed nuclear program.

A positive outcome to the meeting, which began Nov. 20, could potentially lead to an easing of sanctions against the Middle Eastern oil producer. Reports that exports have resumed from Libya’s western oil port of Mellitah also weighed on prices. However, Brent crude rose more than $1 a barrel at midweek after reports suggested a nuclear agreement with Iran would be unlikely this week.

Brent crude for January ended $1.14 a barrel higher Nov. 20 at $108.06, after touching a session high of $108.38 on the London-based ICE Futures Europe exchange. January Brent had dropped to $106.92 a barrel by close on Nov. 19, the lowest settlement for a most-active contract in a week. The contract finished last week at $108.29.

U.S. crude futures, which dropped last week to their lowest level since early June on a further expansion in the country’s crude inventories, came under further pressure after the Energy Information Administration (EIA) on Nov. 20 reported another rise in U.S. crude inventories. The market had been expecting the U.S. energy department to report a decline in stocks; instead the EIA said commercial crude inventories increased 400,000 barrels to 388.5 million barrels for the week ending Nov. 15, marking the ninth weekly climb in a row. Industry group The American Petroleum Institute had reported the previous day, in its own survey, a 512,000-barrel rise in crude stocks for the same week.

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The U.S. crude benchmark, the West Texas Intermediate (WTI) contract for December settled at $93.33 a barrel on the New York Mercantile Exchange (Nymex) following the latest EIA oil report. The December WTI, which expired Nov. 20, finished last week at $93.63 a barrel after touching a five-and-a-half month low of $92.49 earlier in the week. In addition to reporting a further increase in the country’s commercial crude stocks, the EIA forecast that the U.S. would become the biggest world crude producer in 2015.

January WTI crude, which now is the front-month contract, finished at $93.85 a barrel, down four cents at midweek. At more than $14 a barrel, WTI oil is now trading near its widest discount to Brent crude in eight months.

Gold futures prices on the Comex division of Nymex settled at their weakest level since July 10 on Nov. 20. The most active contract, December, dropped $15.50 an ounce on the day to settle at $1,258, as investors worried that the Federal Reserve would soon begin to scale back its stimulus program. The Fed’s $85-billion a month bond-buying package has been supportive of gold.

The minutes of the FOMC October meeting, released by the Fed after Comex’s close, reinforced the idea that it is still on course to taper bond purchases and that the tapering is still data-dependent, Standard Bank analyst Leon Westgate said in the bank’s Nov. 21 Commodities Daily. “Whether the tapering starts in December or March is still uncertain,” he said, “though our view is that March seems more likely.”

Uncertainty over the Federal Reserve’s intentions on its monetary stimulus program was among the factors weighing on copper. The latest HSBC manufacturing survey for China also disappointed copper investors; the “Flash” PMI for November came in at 50.4, down from October’s 50.9, and was below most analysts’ expectations. The red metal is under pressure too over the prospect of rising supply.

Three-month copper on the London Metal Exchange (LME) dropped early this week to its weakest level since Aug. 7. The three-month price touched $6,910 a tonne on Nov. 19 before finishing at $7,005. The three-month price managed to claw back a further $15 a tonne by close the following day.

Cotton and cocoa record gains

Some of the soft commodities fared better this week. After slipping to near one-year lows at the start of the week, cotton futures subsequently climbed higher after the state-run China National Cotton Reserves Corp. (CNCRC) estimated China’s cotton harvest at 6.678 million tonnes (30.67 million 480-pound bales), down 12.3 percent on last year’s output. CNCRC attributed the drop to early snow and frost in the country’s biggest cotton-growing region, Xinjiang, as well as the impact of summer drought in the Yangtze Valley.

The CNCRC figure compares with the U.S. Department of Agriculture’s (USDA) estimate of 32.5 million bales for 2013-2014 published on Nov. 8, which the department had revised down from its September estimate of 33 million bales.

The most-active March contract on ICE Futures U.S. rose 74 cents to settle at 78.20 cents a pound by Nov. 19, while front-month December closed at 77.12 cents a pound. December cotton had slumped near to a one-year low of 75.70 cents Nov. 18 while the March contract set a 10-month low last week. By finish at midweek, March cotton on ICE Futures was down slightly at 78.14 cents a pound.

Meanwhile, the China Cotton Association late last week reported that China’s imports of cotton fell 48.1 percent to 141,200 tonnes in October compared to the same month a year ago. The country’s September imports were 23.4 percent lower year-on-year at 201,300 tonnes. China has been considering overhauling its stockpiling program, and the country’s cotton imports so far this season are down from last year.

Cocoa futures prices reversed their recent downtrend to touch two-year highs both in London and New York this week as renewed global supply concerns spurred fresh investor buying. Dry weather in West Africa earlier this season, which led to worries about the quality and quantity of the main crops in top grower Côte d’Ivoire as well as Ghana, Nigeria and Cameroon, combined with improved demand sentiment, have driven cocoa prices higher this year. Recent flooding in Côte d’Ivoire’s main cocoa-growing area now is worrying some traders. The four West African countries typically account for around 70 percent of the world’s cocoa output.

March cocoa on New York’s ICE Futures U.S. exchange climbed to $2,820 a tonne during trading on Nov. 19, the strongest price for a second-month contract since September 2011. March subsequently settled the day at $2,793, gaining a further $5 by close on Nov. 20.

Cocoa for delivery the same month on London’s NYSE Liffe, meanwhile, finished at £1,774 a tonne, having touched a two-year high of £1,785 earlier in the day.

Analysts said cocoa was finding fresh support on perceptions of tightening supplies.

Robusta coffee futures prices were boosted this week following reports of delays to the harvest in top grower Vietnam and worries about crop damage. Vietnam’s main-robusta-growing areas in the south escaped damage from Typhoon Haiyan which made landfall in the northeast of the country as a tropical storm. But the wet weather accompanying the storm prevented harvesting of the robusta beans and may have reduced the quality of the crop, analysts reported.

Vietnam was expected to produce a record crop in 2013-2014 (Oct.1 –Sept. 30), with forecasts varying from 26-million 60-kilogram bags to as much as 30 million bags of coffee. Most estimates fall between 26 million and 28 million bags. Expectations of this record crop pushed robusta futures down to three-and-a-half-year lows earlier this month.

Low stocks of robusta beans in NYSE Liffe-certified warehouses have also provided some support for futures prices. These certified robusta coffee stocks are reported to have more than halved in the past year.

January robusta on NYSE Liffe closed at $1,578 a tonne on November 20, the strongest in three weeks amid worries about the Vietnam harvest and low stocks. However, traders said robusta’s downtrend would resume if Vietnam produces the record crop forecast.

Arabica coffee futures continued to hold above the multi-year lows recorded on New York’s ICE Futures U.S. exchange earlier this month. The March contract on ICE Futures settled at $1.10 a pound on Nov. 20. The spot December contract hit $1.0095 a pound on Nov. 7, the weakest level for a spot contract since mid-October 2006. Arabica coffee prices have been under heavy selling pressure this year as bumper global supplies weigh on sentiment.

Raw sugar futures at midweek hovered just above the seven-week lows recorded late last week in thin trade. March raw sugar closed last week at 17.50 cents a pound on ICE Futures U.S. On Nov. 20, the March contract finished at 17.65 cents. Meanwhile, refined, or white sugar on London’s NYSE Liffe finished 60 cents down on the day Nov. 20 at $468.60 a tonne.

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.