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.
The sharp year-on-year drop was in part due to the exceptional upsurge in demand in the second quarter of last year, the gold council said. But steeps declines were seen in demand for the precious metal both from the jewellery sector, which was down by a third on the same quarter in 2013, and in demand for bar and coins.
Among other precious metals, palladium remains well supported and over the past week has rallied back towards the 13½-highs seen in late-July. Palladium futures for September delivery on Nymex finished atv$881.60 an ounce on Aug. 13, more than $20 upon last week’s close at $860.50. Continued worries over Russia’s intentions, the world’s biggest supplier of the metal, are giving palladium support.
Sister metal platinum was trading a tad lower this week, with the Nymex October contract at midweek settling at $1,469.90 an ounce against last week’s $1,478.30 close.
Cotton extends losses on U.S. crop report
Among soft commodities, cotton futures fell further after a U.S. Department of Agriculture (USDA) monthly supply and demand report confirmed bearish supply expectations for U.S. production this cotton year (Aug.1-July 31). The country is the world’s biggest exporter of the fiber and favorable weather conditions and higher planted area has contributed to the larger crop expectations.
The benchmark December cotton contract on New York’s ICE Futures U.S. dropped 1.03 cents to settle at 63.37 cents a pound after the USDA released its latest World Supply and Demand Estimates report on Aug. 12.
The USDA raised its 2014-2015 production forecast by 6 percent to 17.5 million 480-pound bales for the U.S. crop, mainly on expected lower abandonment. It also raised the country’s projected 2014-2015 ending stocks by 0.4 million bales from July to 5.6 million bales, 39 percent of total use. If realised, this stock-to-use level will be the highest since 2007-2008.
However, the U.S. department raised its world consumption forecast for cotton in the current year, with consumption upped by 1 percent from last month to 112.6 million bales. It said falling prices are expected to boost cotton’s share of textile fiber use in the current season.
Cotton futures rebounded at midweek, boosted by short-covering and mill buying. ICE December finished 1.35 cents up at 64.72 cents a pound on Aug. 13. The benchmark contract had hit a near five-year low of 62.02 cents a lb at the start of August.
Cocoa holds firm, sugar slips to six-month low
Cocoa futures touched a fresh three-year high in New York this week as strong demand continued to offset ample supplies in top growing country Côte d’Ivoire. Cocoa for September delivery on ICE Futures U.S. hit $3,244 a tonne on Aug. 12, the highest since July 2011, before moving a tad lower at $3,231 the following day.
In London, Liffe December cocoa closed at $2,024 a tonne on Aug. 13 after earlier touching £2,026 a tonne, the strongest since July 2011.
Raw sugar extended last week’s losses, with the benchmark ICE October raw sugar futures hitting a low of 15.85 cents a pound on Aug. 14, its weakest since February. Ample supplies, high global stocks and weak demand more than over-shadowed lower sugar output in top grower Brazil’s main Center-South cane region.
The country’s sugar cane industry association, Unica, said sugar production from the Center-South fell to 2.24 million tonnes in the second half of July, down from 2.55 million tonnes in the prior two weeks, The slowdown, which also took output 12.0 percent below year-ago levels, was due in part to recent rains in central Brazil which slowed cane harvesting.
While the volume of cane processed since the start of the harvest in April has increased by 3.8 percent to 280.4 million tonnes, the yields are lower largely as a result of the prolonged drought conditions that affected southern Brazil in January and February. According to Unica, yields in July were some 10 percent below those of July last year.
White, or refined, sugar on London’s Liffe was largely unchanged on the week, with the October contract settling at $432.65 a tonne on Aug. 13. It had finished last week at $433.35.
Worries over the extent of the drought damage to Brazil’s arabica crop also continue to be the focus of market attention for arabia futures. Benchmark ICE December arabica finished at $1.8960 a pound at midweek, below a three-month high of $2.1110 reached on Aug. 1
Market participants said they expected arabica prices to remain volatile while there continues to be uncertainty over the size of Brazil’s current crop.
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.