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AFKI Commodities Report: U.S. Oil Edges Up, Brent Nears Six-Week Low

AFKI Commodities Report: U.S. Oil Edges Up, Brent Nears Six-Week Low

U.S. oil prices edged above $100 a barrel on further drawdowns at the Cushing, Oklahoma storage hub while Brent crude was pressured  by easing Ukraine concerns. Among soft commodities, arabica coffee futures extended their retreat from two-year highs and sugar was also lower. Cocoa remains close to two-and-a-high year highs on supply worries.

U.S. oil prices edged back above $100 a barrel in New York after a government inventory report showed lower stocks at the key Cushing, Oklahoma storage hub. The U.S. Energy Information Administration (EIA) in its latest weekly oil report reported inventories at Cushing had fallen by 1 million barrels to 29.8 million barrels for the week ending Mar. 14 from the previous week. This compares to stocks of 49 million barrels at the hub this time last year.

Inventories at Cushing have been falling since TransCanada Corp.’s Gulf Coast pipeline (the southern leg of its Keystone XL pipeline) began commercial operations on Jan. 22. The pipeline runs to Nederland, Texas from Cushing and is projected to transport 520,000 barrels a day on average of crude this year.

Meanwhile, another pipeline operator that takes crude from Cushing to Gulf coast refineries, Enterprise Products Partners LP, said Mar. 18 its expanded Seaway pipeline will be in service by late May or early June. The company previously had indicated the expansion would be online by the end of the second quarter.  It is building a new parallel pipeline to expand Seaway’s capacity from 400,000 barrels a day to 850,000 barrels a day.

Cushing has experienced a storage glut amid the rapid increase in U.S. crude production as a result of the country’s shale gas drilling boom and a shortage of transportation capacity to move the crude to refineries.

WTI for April delivery gained 67 cents to finish at $100.37 a barrel on the New York Mercantile exchange (Nymex) on Mar. 19. A week earlier, April WTI had fallen to $98.60 a barrel by close, pressured mainly by downbeat data from China, U.S. government plans for a test release from the country’s Strategic Petroleum Reserves (SPR) and surging oil inventories .

The EIA reported a further increase in the U.S. total commercial crude stocks for the week ending Mar. 14; the government energy body said stocks rose 5.9 million barrels to 375.9 million barrels.

Meanwhile, the European oil benchmark, Brent North Sea crude, was trading near a six-week low at midweek as worries about the crisis in Ukraine eased and the market digested the further rise in U.S. commercial crude stocks.

Brent crude for May delivery fell 94 cents to settle at $105.85 a barrel on London’s ICE Futures Europe exchange on Mar. 19.  Brent had finished at $111.20 a barrel at the beginning of last week, its highest settlement since late December as the market fretted over Russia’s involvement in Ukraine and political tensions in Libya.

Gold fell after the U.S. Federal Reserve on Mar. 19 decided to continue with tapering of its monetary stimulus programme by another $10 billion a month. The move, which will see the Fed reduce its monthly purchase of bonds to $55 billion, had been expected by the market. Even so, the most-active gold contract on Comex – currently April – fell $17.70 to settle at $1,341.30 an ounce after the decision was announced.   On Mar. 12, April gold had finished at a five-month of $1,370.50.

The Fed also indicated it will raise interest rates next year. Both moves weaken the investment appeal of gold.

Gold eases on Ukraine crisis

Gold prices were also pressured amid an easing in concerns of an escalation of the crisis in Ukraine.  Worries were alleviated somewhat after Russia’s President Vladimir Putin said he did not want to split up Ukraine after approving plans for Crimea to be part of the Russian Federation.

The easing of concerns over Ukraine also pushed down palladium futures. Russia is the largest producer of palladium and U.S. palladium futures recently have been trading near one-year highs on concerns that exports from Russia could be disrupted if economic sanctions were to be imposed against the country.

Palladium futures for June settlement on Comex finished at $768.20 an ounce on Mar. 19, $16.80 down on the $787.60-an-ounce reached on Mar. 6. This latter price marked the highest for a most-active contract since Mar. 8, 2013.

Platinum futures were also lower.  Platinum for April settlement on Comex finished at $1,451.70 an ounce at midweek and their lowest level since Mar. 4.

The price reaction to the strike at platinum mines in South Africa owned by Anglo American Platinum (Amplats), Impala Platinum (Implats) and Lonmin largely has been muted, even though no end appears to be in sight to the labour dispute. Prices spiked up briefly in the first week of March following the collapse of government-brokered wage talks between the three producers and the country’s Association of Mineworkers Construction Union (Amcu).  No further negotiations are currently reported to be scheduled.

South Africa produces around 40 percent of the world’s platinum but so far the market has remained well-supplied as the three producers as well as fabricators had built up ample above-ground stocks ahead of the labour action. However, the longer the strike goes on, so concerns about supplies will increase.

Arabica retreats from two-year high

Arabica coffee futures extended their retreat from the two-year highs that began last week. Worries about the extent of the damage to top producer Brazil’s crop prospects from extreme hot, dry weather in December through February continue to underpin the market. But profit-taking by funds and expectations that the weather in the country’s main coffee-growing regions in Minas Gerais and north of São Paulo could continue to improve helped take some of the upward pressure off prices.

Firm projections for Brazil’s 2014/15 crop have yet to come in, but most market participants believe the crop has suffered irreversible damage as a result of the prolonged hot, dry weather. Many analysts already have cut their 2014/15 production estimates, with the caveat that the full scale of crop damage cannot be fully estimated until the harvest comes in May-June.

May arabica coffee on New York’s ICE Futures U.S. exchange finished at 186.40 cents a pound on Mar. 19, down $22.5 on last week’s two-year peak. The second-month contract had reached 208.90 cents a pound on Mar. 11, its highest level since February 2012 and a more than an 80 percent advance since the start of the year.

Robusta coffee on London’s NYSE Liffe exchange was also lower this week, with the May contract finishing at £2,091 at midweek, $127 off last week’s 17-month peak of $2,218.

Raw sugar prices were also trading lower having spiked up to a four-month on Mar. 6 amid the impact of dry weather in Brazil’s main Center-South cane-growing areas. Despite expectations of some reduction in the size of the next crop, global exportable sugar surpluses are seen as ample and should provide a buffer to any production losses, analysts say.

May raw sugar on ICE Futures U.S. settled at 17.36 cents a pound on Mar. 19, down 28 cents on the Mar. 12 close of 17.64 cents. ICE May had reached a four-month peak of 18.47 cents on Mar. 6 on the Brazilian crop worries.

Copersucar, the world’s largest sugar and ethanol trader, late last month cut its sugar cane crop estimate for Brazil’s Center-South in the 2014/15 season, which starts in April, to 570 million tonnes from 610 million tonnes as a result of the drought conditions.

Macquarie Bank this week lowered its 2014/15 sugar-cane production estimate for Brazil’s Center-South to 575 million tonnes. But the global market still will remain in surplus, the bank noted in its latest Agri-View report.

“At prices above 18 cents a pound, the market was getting the wrong signals and risks remaining in surplus for longer,” Macquarie said. “Prices should come down by the end of the quarter although an eye will need to be kept on Center-South Brazilian cane weather.”

Refined, or white, sugar on London’s NYSE Liffe also edged lower with the May contract finishing at $459.05 a tonne against $461.60 a week ago.

Cocoa futures in London and New York, meanwhile, remain close to two-and-a-half year highs supported by expectations of a second straight year of deficit. At midweek, ICE May settled at $3,016 a tonne, just below  the two-and-a-half year high of $3,027 a tonne reached on Mar. 11. Liffe cocoa for delivery in the same month finished at £1,898 a tonne, a two-and-a-half year high.

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.