AFKI Commodities Report: Oil Price Direction Mixed On Supply Concerns

AFKI Commodities Report: Oil Price Direction Mixed On Supply Concerns

U.S. crude futures climbed above $98 a barrel on Dec. 10 to settle at their highest level in six weeks amid market expectations that the U.S. Energy department would report a second week of decline in the country’s crude inventories, according to this week’s AFKI Commodities Report.

However, midweek saw U.S. crude heading back towards $97 as the market reacted to a far higher-than-expected refined oil products stocks build.

The U.S. Energy Information Administration (EIA) reported another large drawdown in U.S. crude inventories for the week ending Dec. 6 as anticipated. But the government data showed large buildup in the country’s stocks of refined oil products, suggesting domestic demand is on the sluggish side.

West Texas Intermediate (WTI), the U.S. light, sweet, crude benchmark, for January delivery on the New York Mercantile Exchange (Nymex) climbed to settle at $98.51 a barrel on Dec. 10. This was the highest settlement for a most-active contract since Oct. 28. But following the latest EIA weekly oil report on Dec. 11, January WTI fell to $97.44 a barrel by close.

U.S. commercial crude stocks dropped by 10.6 million barrels during the week ending Dec. 6, to end at 375.2 million barrels, the EIA report showed. But the country’s total motor gasoline inventories were up by 6.7 million barrels last week while distillate fuel inventories increased by 4.5 million barrels. These latter increases were reportedly three times more than many market watchers had anticipated.

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In contrast to U.S. crude prices, Brent North Sea crude, the European benchmark, was trading at lower levels. Having climbed above $112 a barrel last week, Brent crude for January delivery on the London-based ICE Europe Futures Exchange fell to close at $109.38 a barrel on Dec. 10, more than $2 down on Dec. 6’s close of $111.61 a barrel.

Reports that Libya plans to reopen the country’s main oil ports of Es Sider, Zueitina and Ras Lanuf on Dec. 15 put some pressure on Brent prices. The terminals have been closed since the end of July. However, supply concerns soon started to kick in again, as many traders remain skeptical about the restart of shipments. January Brent regained 32 cents on Dec. 11, closing at $109.70 a barrel.

Crude prices found some support from a further drop in OPEC crude production in November, which fell to 29.633 million barrels a day from 29.827 million barrels in October, a decline of some 194,000 barrels a day.

On the demand side, the Paris-based International Energy Agency (IEA) in its latest monthly oil market report revised upwards its estimate of global oil demand for 2013 by 130,000 barrels a day, to 91.2 million barrels a day, on stronger-than-expected third quarter 2013 OECD demand growth of 320,000 barrels per day. The energy agency now expects global demand advancing by 1.2 million barrels a day in both 2013 and 2014, to reach 92.4 million barrels in 2014. The IEA in November estimated demand next year to reach 92.1 million barrels.

Among base metals, copper climbed to its highest level in more than a month at midweek, boosted by a weaker U.S. dollar and solid demand from top consumer China. Supplies of the red metal for prompt delivery are reported to be tight amid limited scrap supplies and declining stocks in London Metal Exchange (LME) and Shanghai Futures Exchange-monitored warehouses.

Three-month copper on the LME closed at $7,220 a tonne on Dec. 11, the highest since early November, up 1.5 percent on last week’s finish.

Gold futures hit a three-week high early this week, bouncing back from the slide in prices last week amid better-than-expected U.S. employment data. The positive jobs data re-fueled speculation that the U.S. Federal Reserve would start to taper its $85-billion-a-month bond-buying program, which has helped boost gold prices, among other assets. The Fed is due to hold its next Federal Open Market Meeting meeting Dec. 17-18.

Gold for February delivery added $26.90, or 2.2 percent to settle at $1,261.10 an ounce on the Comex division of Nymex on Dec. 10. That was the highest close for a most-active contract since mid-November. Gold came off a tad by close the following day, losing $3.60 to settle at $1,257.50 an ounce.

Cotton futures up on tight U.S. supplies

Among the soft commodities, cotton futures found support from the U.S. Department of Agriculture (USDA) this week, reconfirming its expectations for tight supplies in the U.S., the top cotton-exporting country. The USDA in its latest World Agricultural Supply and Demand Estimates (Wasde) report, released on Dec. 10, slightly reduced its outlook for production in the U.S. in 2013-2014 (Aug. 1-July 31) to 13.07 million 480-pound bales from its November estimate of 13.11 million bales. The country produced an estimated 17.32 million bales of cotton in 2012-2013.

The most active March contract on the ICE Futures U.S. Exchange touched a seven-week high of 82.93 cents a pound at midweek before settling at 82.49 cents on Dec. 11, a 20-cent fall on the previous day’s close of 80.69 cents. March cotton had ended last week at 80.41 cents.

The USDA raised its estimate for 2013-2014 world ending stocks by less than 1 percent to 96.41 million bales from 95.71 million bales in November, as global output continues to outstrip demand. The department’s estimate of global cotton consumption in 2013-2014 remains virtually unchanged at 109.68 million bales. But it reduced its estimates of world import demand in the current cotton year by 1.2 percent to 38.49 million bales from its November estimate, due mainly to larger supplies in India and Pakistan.

Analysts said that while the USDA expectations buoyed prices immediately following the release of the report, the data contained few surprises for the market.

Arabica coffee futures, meanwhile, rallied the most in 15 months amid reports of falling inventories of the beans. There is speculation that coffee roasters will use more arabica coffee as supplies of robusta diminish. The historically cheaper robusta beans are predominantly used to make instant coffee while arabica dominates the gourmet roast-coffee market. However, robusta stocks at NYSE warehouses have fallen to their lowest since 2002, according to NYSE Liffe figures.

Arabica futures for March delivery surged 4.2 percent on Dec. 10 to close at $1.1048 a pound, then settled lower the following day at $1.0983. Arabica prices are hovering just above a five-year low and are widely expected to retest the low on account of ample global supplies which have weighed on prices for the past several months.

Robusta futures, meanwhile, continue to find support not only from low inventories but also on ongoing concerns about nearby supplies from the biggest robusta producer, Vietnam. Liffe NYSE January robusta on Dec. 10 hit $1,849 a tonne, 27 percent up on the three-and-a half-year low of $1,454 recorded in early November.

The arabica-versus-robusta premium is now at its lowest in five years, analysts said, and could trigger buying interest in arabica.

Raw sugar futures’ direction, meanwhile, was mixed after dipping to a fresh three-month low at the start of the week. Raw sugar for March delivery touched 16.52 cents a pound on Dec. 9 on ICE Futures U.S., before rebounding on news that sugar output in Brazil’s top sugar cane-growing region — the Center-South —  fell 21.6 percent to 1.44 million tonnes in the second half of November compared with the same month last year, according to the country’s sugarcane industry association, Unica. The fall in production in part reflected a drop in cane crushing due to wet weather disrupting the harvest.

Center-South millers also continue to process a smaller proportion of cane into sugar, opting to manufacture ethanol instead. Some 44.11 percent of cane was processed into sugar in the second half of November compared with 50.51 percent in the same period last year, Unica data showed.

Raw sugar for March delivery climbed to 16.63 cents a pound by Dec. 10’s close on ICE Futures U.S.  but slipped to settle at 16.50 cents the following day.

Refined, or white, sugar bounced off the lows seen last week, settling at $451.45 a tonne on Dec. 10 on NYSE Liffe. This was a more-than-$5 gain on the $446.20-a-tonne hit on Dec. 5.

Cocoa futures were trading lower after New York cocoa recorded fresh two-year highs last week on tight supply concerns. Cocoa for March delivery on ICE Futures U.S. settled $49 down on the week so far, closing at $2,750.50 on Dec. 11. The March contract had hit its strongest level in two years at $2,844 a tonne on Dec. 3.

Liffe cocoa in London, meanwhile, finished at £1,734 a tonne at midweek, down £29 on where it had opened the week. In November, Liffe March cocoa powered up to a two-year high of £1,788 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.