AFKI Commodities Report: U.S. Oil Drops To 6-Week Low

AFKI Commodities Report: U.S. Oil Drops To 6-Week Low

Lower-than-expected stock falls took their toll on U.S. oil prices this week, while Brent crude prices were better supported on renewed Libyan supply concerns. Among the soft commodities, arabica coffee prices surged on forecasts of rather less coffee than expected from top producer, Brazil, this year.

U.S. oil futures fell to a six-week low at midweek, dropping below $93 a barrel after the country’s Energy Information Administration (EIA) reported a less-than-expected drop in U.S. crude inventories and a 1.1-million-barrel build in crude stocks at Cushing, Okla. Cushing is the U.S. oil futures contract delivery point. The country’s gasoline stock build was also higher than expected. However, renewed concerns about oil-production disruptions in Libya amid escalating tensions with separatist militia limited the price fall.

Light, sweet crude for February delivery on the New York Mercantile Exchange (Nymex) was down $1.34 a barrel on the day by close on Jan. 8, settling at $92.33 — the weakest close since late November.

The EIA on Jan. 8 reported U.S. commercial crude stocks fell 2.7 million barrels to 357.9 million barrels during the week ending Jan. 3. The market had expected a bigger drop. Moreover, motor gasoline inventories climbed by 6.2 million barrels while distillate fuel stocks were up by 5.8 million barrels.

Data from the EIA also show that crude stockpiles at the Cushing hub rose 1.1 million barrels to 4.7 million barrels during the week ending Jan. 3.

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Tensions in Libya helped underpin the Brent North Sea crude price, which on Jan. 9 was moving back towards $108 a barrel, after settling at $107.15 a barrel the previous day. On Jan 2, Brent futures on London’s ICE Futures Europe exchange had shed more than $3 a barrel to close at $107.78 after Libya’s National Oil Corporation said it planned to restart the El Sharara oilfield. Operations at the oilfield have been halted by a labor strike since the end of October. Armed separatist militants, who have blockaded various oil production and export facilities in eastern Libya since July, now are attempting to sell oil from rebel-controlled terminals. The country’s oil output is widely reported to have fallen from 1.4 million barrels a day in July to just 250,000 barrels a day in December.

Brent crude for February delivery ended last week at $106.89 a barrel.

Gold has rebounded from just below $1,190 an ounce in December. The precious metal dipped below $1,200 in December for the first time since June.

Open interest in gold has increased marginally since the start of 2014, as the gold spot price has moved towards its current $1,240 level, according to Standard Bank’s Head of Research, Walter de Wet. This indicates that new longs are entering the market, he said.

The physical market for gold is also seeing strong demand, according to the bank’s Daily Global Commodities report on Jan. 7.

“The buying frenzy in especially China comes on the back of the seasonal demand pick-up ahead of the country’s New Year, which starts on 31 January,” de Wet said.

However, he warned that once the current seasonal demand from Asia fades in February, new longs in the futures market are likely to liquidate, and the current rally in gold is likely to fade.

Arabica surges on smaller Brazil crop

Arabica coffee futures have surged in recent days amid indications of a smaller crop in Brazil, the world’s top producer. Bearish sentiment dogged arabica prices for much of 2013 as big crops in Brazil and elsewhere added to already abundant global inventories of the beans.

Conab, Brazil’s government food supply agency, on Jan. 9 forecast a coffee crop (comprising arabica and robusta) of 48.34 million 60 kilogram bags, down from 2013’s output of 49.15 million bags. It was the first estimate for Brazil’s 2014 harvest. The agency cited decreased area planted for arabica plants and falling investment as the main reason for the downturn.

Conab said the 2014 forecast reflected the average of projections ranging from 46.53 million to 50.15 million bags. Of the total forecast for 2014, the agency forecast the country’s arabica crop will be between 35.1 million and 37.5 million 60-kg bags, down from 38.3 million bags last year.

However, many analysts believe Conab’s estimate for the 2014 harvest is too optimistic, citing concerns about significant crop damage as a result of the heaviest rains in 90 years to hit the country’s coffee-growing belt in December.

Arabica coffee for March delivery on ICE Futures U.S. reached $1.226 a pound Jan. 7, the highest for a most-active contract since Aug. 19. March arabica closed 1.3 percent lower the following day at $1.2098. Through the 12 months to Dec. 31, arabica futures prices dropped 26 percent.

Robusta coffee futures were also up from where they started the new year, with the March contract on NYSE Liffe settling at $1,713 a tonne on Jan. 8, $30 up on its 2014-opening position.

Cotton futures prices rallied early this week on news that the world’s biggest producer and consumer, China, may reduce its cotton plantings this year. Prices were also supported as freezing weather in key cotton-growing states in the U.S. is expected to slow the pace of the harvest.

Cotton for March delivery on New York’s ICE U.S. Futures exchange settled 1.2 percent up Jan. 7 at 84.67 cents a pound. However, by close the next day, the March contact had slipped to finish at $83.14.

China’s farmers are expected to plant 8.9 percent less cotton in 2014, a third straight year of decline, according to a survey by the China Cotton Association (CCA). CCA in its Jan. 6 statement said that based on its acreage statistics for 2013, this year’s national cotton planting acreage is estimated at 4.24 million hectares.

The market is also looking to the U.S. Department of Agriculture’s (USDA) next monthly supply-demand report, expected to be released today. There is some speculation that the USDA may indicate a lower-than-expected inventory figure for cotton.

Raw sugar futures sank to a fresh three-and-a-half-year low at midweek, extending a long-term downward trend in a market weighed down by burgeoning global supplies.

Sugar prices briefly traded above 20 cents a pound in mid-October, their highest in almost a year, before resuming their downward trend. Raw sugar for March delivery on ICE U.S. futures touched 15.72 cents a pound Jan. 8, the lowest level for a front-month contract since July 2010, before closing 2 cents up on the day at 15.74 cents a pound.

March refined, or white, sugar, meanwhile, settled at $432.10 a tonne on London-based NYSE Liffe at midweek and nearly $17 down from where it opened the new year.

“Fundamentals indicate prices are likely to remain under pressure for at least the next few months,” Netherlands-headquartered Rabobank said in its Sugar Quarterly fourth quarter 2013 report, released Jan. 9.

Rabobank analyst Andy Duff explained that firm demand for imports, reaction to the Copersucar terminal fire in the key Brazilian port of Santos and doubts about the Brazilian harvest were among the factors behind October’s run-up in sugar prices.

Rabobank’s latest projection of the global supply/demand balance for 2013-2014 point to a fourth consecutive global surplus of 2.5 million tonnes, raw value. According to the bank, this implies a further build-up of global stocks over the 2013-2014 international crop year, maintaining the global stocks-to-consumption ratio at high levels through to September.

This in turn suggests that there is limited scope for world prices to move significantly above their recent levels in the coming months unless there is a change in the underlying fundamentals, Rabobank said.

“There appears to be a distinct shortage of potential upside influences for world sugar at present, bar the obvious proviso that the outlook for production in key countries could change over the coming months,” said Duff.

Life cocoa futures slipped to a seven-week low this week as bean arrivals at ports in top producer Côte d’Ivoire picked up pace. Cocoa for delivery in March settled at £1,725 a tonne on NYSE Liffe on Jan. 8, down $7 from where it closed 2013. ICE March cocoa in New York finished at $2,706.50 a tonne at midweek, little changed from where it opened the new year.

Cocoa arrivals at the West African country’s ports reached around 868,000 tonnes by Dec. 29 since the start of the season Oct. 2, according to Reuters, which cited exporters’ estimates. This was some 39 percent higher than the 622,000 tonnes for the same period the previous season.

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.