AFKI Commodities Report: Oil And Gold Push Higher

AFKI Commodities Report: Oil And Gold Push Higher

U.S. oil futures continued their push above $100 a barrel this week to reach their highest level in more than four months. Prices are being supported by strong demand for heating-related fuels and falling inventories at the key Cushing, Okla. storage hub, the delivery point for the New York Mercantile Exchange (Nymex) futures contract.

Benchmark light, sweet crude – the West Texas Intermediate (WTI) – for March delivery rose 88 cents to settle at $103.31 a barrel on Nymex on Feb. 19. Earlier, March WTI touched an intraday high of $103.65, a level not seen since Oct. 9 and a 12.7-percent gain on the low of $91.66 a barrel posted early last month. The March WTI contract expired on Feb. 20.

Brent North Sea crude, the international crude benchmark, also continued its rally. Brent for April delivery climbed to $110.83 a barrel on London’s ICE Futures Europe exchange on Feb. 19 before settling at $110.47, one cent up on the day, and its highest price to this year.

The ongoing cold weather in the U.S. is continuing to lend support to energy prices, analysts said at Commerzbank in Frankfurt, Germany, in a Commodities Daily note early this week. However, they warned that they expect prices to correct, “possibly seeing the WTI decline by several U.S. dollars within a matter of days, once the cold weather abates, as happened at the beginning of this year.”

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Prices have surged on strong demand for heating-related fuels such as heating oil amid severe winter weather in parts of U.S. which has led to sharp drawdowns in inventories of distillates. The country’s distillate fuel inventories fell a further 0.3 million barrels in the week ending Feb. 14, the U.S. Energy Information Administration (EIA) reported on Feb. 20. The prior week saw a 0.7-million-barrel decline. The government body noted U.S. distillate stocks are well below the lower limit of the average range for this time of year.

The EIA also reported a further fall in crude inventories at Cushing, down a further 1.7 million barrels to 35.9 million in the week ending Feb. 14. The start-up last month of TransCanada Corp.’s Gulf Coast pipeline that runs to Nederland, Texas, from Cushing allows more crude to be moved out of the storage hub to U.S. Gulf refineries. However, the country’s total commercial crude stocks were up a million barrels to 362.3 million, EIA said.

Meanwhile, Brent crude is being supported by renewed global supply concerns amid little or no recovery in output from Libya as well as political unrest in Venezuela descending into violence.

Gold at 3⅟2-month highs

Gold continued to add gains, hitting a three-and-a-half month high on Feb. 17 amid improved investor demand for the precious metal. Weak U.S. economic data which pushed the U.S. dollar to its lowest this year against a basket of other currencies coupled with surging energy prices helped boost investor appetite for the precious metal.

Spot gold reached $1,429 an ounce in the p.m. fix in London on Feb. 19, it highest price since Oct. 31. By midweek, spot gold had eased back a tad to $1,424. U.S. gold futures for April delivery finished at $1,320.40 an ounce on Comex on Feb. 19 after hitting $1,332.4 an ounce early in the week, the highest level so far this year.

The publication of global gold demand figures on Feb. 18 by the London-based World Gold Council (WGC) had little impact on prices. WGC reported world gold demand last year at 3,756 tonnes — 15 percent lower than in 2012, marking a four-year low. The weak demand picture is generally well known to the market, analysts said.

The downturn was due largely to weak investor demand. Net outflows from gold EFTs in 2013 totaled 881 tonnes as investors continued to re-evaluate their portfolios in response to market conditions, the gold council said. Neither strongly increased demand for gold from the jewelry sector (up 17 percent from 2012) nor record sales of bar and coins (up 28 percent from 2012) were able to offset the EFT outflows.

“The gold market became polarized in 2013 as 21 percent growth in demand from consumers and value-seeking investors contrasted with large-scale outflows from ETFs,” said WGC in its Gold Demand Trends report.

China’s demand for the precious metal set a new record of 1,065.8 tonnes in 2013, knocking India from its pole position as the world’s top gold consumer, according to WGC. India’s demand for the precious metal topped 974.8 tonnes in 2013. This marked the third-highest annual volume for the country and came in spite of a number of government measures to limit demand, the gold council said.

South African platinum strike enters fifth week

The strike by members of South Africa’s Association of Mineworkers and Construction Union (Amcu) at the world’s top three platinum producers’ mines continues to have minimal impact on platinum prices despite the labor dispute now entering its fifth week. However, prices could start to rise if stocks go down.

Spot platinum briefly climbed to a three-month high of $1,469.50 an ounce in January after Amcu members at Lonmin voted to join their striking mineworker colleagues at Anglo American Platinum (Amplats) and Impala Platinum (Implats). Even as platinum miners began their strike on Jan. 23, spot prices had eased back to $1,454.

This week, spot platinum was trading at around the $1,418-to-$1,429 an ounce on the London market, and was fixed at $1,424 in the p.m. fix on Feb. 19. U.S. platinum futures for April delivery on the Comex division of  Nymex settled at $1,424.5 an ounce at midweek. U.S markets were closed Feb. 17 for the President’s Day holiday.

Platinum’s sister metal palladium similarly has been little moved by the labor dispute. Spot palladium was fixed at $739 an ounce in the p.m. fix on the London market on Feb. 19. March palladium futures on Comex, meanwhile, finished at $735.4 an ounce. U.S. palladium futures had been trading around $745 to $746 on the eve of the strike.

In a joint statement this week, Amplats, Implats and Lonmin said they would not raise the wage offer they made on Jan. 29 which was rejected by Amcu on behalf of its members. The producers also continued to warns of job losses the longer the strike goes on.

Amcu is demanding a monthly basic wage of R12,500 ($1,143) for its workers, an effective 150-percent increase in some cases. The three producers have offered a 7-percent to 9-percent annual increase over each of the next three years. The three platinum companies on Feb. 19 said their offer was “fair and reasonable” and they “cannot and do not contemplate anything above this.”

It remains imperative that an affordable, achievable and sustainable resolution is reached, they said, warning that “prolonged strike action will result in more losses, in further fundamental restructuring and inevitably, this will have a negative impact on jobs and the economy.”

Amcu vowed to continue striking until “we achieve a settlement that is accommodative of our R12,500-rand-a-month demand.”

An estimated 80,000 South African platinum mine workers are on strike and the three producers are reported to be losing around 9,900 ounces of platinum and 5,000 ounces of palladium daily since the walkout began.

Coffee & sugar soar on Brazilian weather woes

Coffee and sugar were among the soft commodities seeing renewed price surges this week as dry growing conditions persist in Southern Brazil. Despite scattered showers last week, the rainfall so far has not been heavy enough to assuage the drought.

The hot, dry weather is coming at a crucial stage for the development of the coffee beans. Many fear the 2014-2015 crop, due to start harvesting in May, already has sustained significant losses. Brazil’s Cooxupé, the world’s largest coffee cooperative, recently warned the drought will reduce the next crop in its growing areas in Minas Gerais, the country’s leading coffee-growing area, by as much as 30 percent.

May arabica futures on the ICE Futures U.S. exchange in New York soared to settle at 172.25 cents a pound by midweek, the highest finish for the most-active contract since early October 2012 and a more-than 55-percent gain since the start of the year.

“The market for arabica coffee appears to have gone crazy,” Commerzbank said in a Commodities Daily note earlier this week.

“The ongoing drought in Brazil, the world’s most important grower of coffee, is continuing to unsettle market players,” the bank said, noting meteorological service estimates indicated rainfall in key coffee-growing regions of the country fell short of the normal total by 88 percent in the past 30 days.

“For the time being, pricing on the coffee market will hang on every word spoken by the meteorologists,” Commerzbank said.

The lion’s share of Brazil’s coffee production typically is of arabica, but about 25 percent of its output is of the cheaper robusta variety. Robusta futures prices also have moved up sharply on the country’s weather woes. The May robusta contract on London’s NYSE Liffe exchange reached $1,982 a tonne on Feb. 19, the highest level since mid-July before settling 4.4 percent up on the day at $1,957 a tonne. Robusta coffee futures now have advanced by around 16 percent so far this year.

Raw sugar prices also gained as Brazil’s dry weather has reduced production forecasts for sugar cane output in the country’s center-south. Raw sugar for May delivery on ICE Futures U.S. closed at a two-month high of 16.85 cents a pound on Feb. 19.

In other softs markets, cotton futures were lower by midweek, with the ICE March contract finishing at 86.97 cents a pound.

Cocoa futures edged up to a fresh 29-month high early this week amid continued worries that dry weather in West Africa could reduce output from the region’s mid-crops, triggering fears that demand for the key chocolate-making ingredient will outpace supply for the second year running. The four producing countries of Côte d’Ivoire, Ghana, Nigeria and Cameroon together typically provide about 70 percent of the world’s cocoa each year. The mid-crop is the smaller of the two annual harvests in the region, and normally begins around April-May through September.

Cocoa for delivery in May on the ICE Futures U.S. exchange recorded an intraday high of $2,985 a tonne, a level last reached in September 2011, before settling at $2,946 on Feb. 18.  The following day, May cocoa finished $5.50 down on the day at $2,940.50 a tonne.

While care has been taken to ensure that the information contained in this AFKI Commodities 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.