AFKI Commodities Report: Weak Demand Outlook Pressures Oil

AFKI Commodities Report: Weak Demand Outlook Pressures Oil

Brent dips to 12-month low amid weak demand outlook; Gold finds fresh safe-haven support and boost from adverse U.S. retail data; ICE cotton extends losses on U.S. crop outlook; cocoa holds firm while raw sugar dips to six-month low

Worries about weak demand and ample global supplies continued to offset geopolitical concerns in crude oil markets in both London and New York this week. Brent crude rose briefly in the wake of U.S. air strikes against Islamic State (IS) militants in Iraq, opening the week at just over $105 a barrel.

By midweek, the September contract, which expired on Aug. 14, was trading below $103 on London’s ICE Futures exchange , and at one point dipped as low as $102.37, its lowest since June 2013. The Brent contract for October delivery was up 24 cents to close at $105.06 a barrel on Aug. 13.

Brent and U.S. oil prices came under pressure after the Paris-based International Energy Agency (IEA) on Aug. 12 cut its forecast of global oil demand growth for 2014 by 0.2 million barrels a day to 1 million barrels from its July projection of a 1.2 million barrels increase.

In its August Oil Market Report, the agency said it now expects world oil demand to reach 92.7 million barrels a day this year. IEA cited lower-than-expected second-quarter oil deliveries and the weaker outlook for worldwide global economic growth by the International Monetary Fund (IMF) as the main reason for a downward revision of the oil consumption outlook this year.

The IEA also cut its 2015 demand forecast to 94 million barrels a day, 300,000 barrels less than the previous forecast.

The U.S. benchmark West Texas Intermediate (WTI) for September delivery closed 71 cents down at $97.37 a barrel on Aug. 12, but shook off an unexpected rise in U.S. crude stocks to finish a tad higher the following day at $97.59 a barrel.

Surprising many analysts, the U.S. Energy Information Administration (EIA) reported a 1.4 million barrels climb in the country’s commercial crude inventories to 367 million barrels during the week to Aug.8, reversing an approximate 22-million barrels decline over the preceding six weeks. Stocks were also up at the key Cushing, Oklahoma storage hub, by 400,000 barrels a day to 18.4 million.

But on a more positive note, the country’s gasoline inventories fell by 1.1 million barrels to 212.7 million, the EIA said.

Brent, the international oil benchmark, now has fallen 11 percent since mid-June when IS militants started taking control of swathes of Northern Iraq   Initial fears that the fighting and escalating violence would disrupt oil supplies from the country have yet to be founded. Many oil market participants still do not to expect any supply outages in Iraq.

Certainly, according to the Kurdish Regional Government (KRG), oil production in the semi-autonomous region of Iraq’s Kurdistan, oil production so remains unaffected, with oil being delivered to both the domestic and export markets, a Aug. 9 statement by the KRG Ministry of Natural Resources said.

Oil operations in the south of Iraq, which account for more than 70 percent of the country’s output, are also reported to be working normally.

Crude exports from the southern ports, now federal Iraq’s only route to move its oil to export markets following the damage to the northern pipeline that runs from Kirkuk to the Turkish Mediterranean port of Ceyhan, actually increased in July, according to Iraq’s State Organization for Marketing of Oil (SOMO).

Exports from the southern ports in July reached 75.7 million barrels – an average 2.44 barrels a day, against 72.8 million barrels (2.42 barrels a day) in June.

The KRG has been exporting crude oil independently of federal Iraq via its own pipeline, inaugurated early this year, which connects near the Turkish border with the federal pipeline to Ceyhan.

Gold up on Iraq, flat U.S. retail sales

Gold eased back from the three-week reached on Aug. 8 amid increased safe-haven buying of the precious metal after news that the U.S. would make airstrikes on IS militants’ positions in Iraq. Gold for December delivery on Comex traded as high as $1,323 an ounce on Aug. 8 before settling at $1,311.

While safe-haven buying continued to provide some support, with December gold closing at $1,310.60 an ounce on Aug. 12, it was news of disappointing July U.S. retail sales that provided the latest fillip to prices.

Comex December gold finished $3.9 up on the day at midweek, settling at $1,314.50. According to Reuters, U.S. retail sales were flat in July, and the lowest since January, suggesting “some loss of momentum” in the economy.

For physical gold, global demand declined 16 percent year-on-year to 963.8 tonnes in the second quarter, the World Gold Council reported this week.