Crude oil prices continued to head south this week, with both Brent and New York Mercantile Exchange (Nymex) oil futures dropping to fresh lows as further signs of weak global demand pressured markets at a time of growing global supply.
Brent crude for delivery in October on London’s ICE Futures Europe exchange fell below $98 a barrel to touch a low of $97.72 on Sept. 10 and $97.10 on Sept. 11, levels not seen since April 2013. December Brent finished last week at $100.82 a barrel.
U.S. light, sweet crude futures, known as the West Texas Intermediate (WTI), for October delivery on the Nymex followed a similar trajectory. October WTI hit an intraday low of $90.46 a barrel at the time of writing on Sept. 11, marking the lowest intraday level since April 2013. October WTI had finished the previous day’s trading at $91.67, down $1.62 a barrel on the week to date.
Crude oil futures have fallen now by more than 15 percent from where they climbed in mid-June. Brent touched $115 and the WTI $107 a barrel amid fears of supply disruption in Iraq. Since then, in addition to worries about increasing supply, concerns have been growing about weakening global demand.
On the supply side, rising crude output from Libya has put pressure on Brent futures in particular. According to state-run oil company NOC, crude output from Libya has risen to more than 800,000 barrels a day from a low of 210,000 barrels a day in April.
Adding further to concerns about ample world supplies, the U.S. Energy Information Administration (EIA) in its Sept. 9 report said it now expects U.S. crude oil production to average 9.5 million barrels per day in 2015 — 0.2 million barrels per day more than projected a month earlier in its Short-Term Energy Outlook. If realized, the 2015 forecast could result in the county’s highest annual average crude oil production since 1970.
While the EIA reduced slightly its projection for global oil consumption, it still expects demand to grow by 1.0 million barrels a day this year and 1.3 million barrels a day in 2015.
Meanwhile, the Paris-based International Energy Agency (IEA) in its Oil Market Report published Sept. 11, also reduced its forecast for global oil demand growth for 2014 and 2015. The agency cut its expectations for world oil consumption growth this year to 0.9 million barrels a day and to 1.2 million barrels a day in 2015, with demand forecast to reach 93.8 million barrels in 2015. IEA cited a pronounced slowdown in demand growth in the second quarter of 2014 and a weaker outlook for Europe and China as underpinning the downward revisions.
Output from the Organization of the Petroleum Exporting Countries (OPEC) fell by 130,000 barrels a day in August to 30.31 million barrels as a steady recovery in Libyan production failed to offset lower supply from Saudi Arabia and Iraq, the IEA reported. The agency said the “call on OPEC crude and stock change” was lowered by 0.2 million barrels a day for the fourth quarter of 2014 to 30.6 million barrels a day and 0.3 million barrels a day for 2015 to 29.6 million barrels on a weaker demand outlook and robust non-OPEC supply growth.
Meanwhile, in its own monthly report released Sept. 10, OPEC indicated it also had cut its forecasts for global demand for OPEC crude this year and for 2015, reducing its projection by 160,000 barrels a day to 29.2 million barrels a day. The OPEC report indicated that supply would exceed demand by 1.15 million barrels a day in 2015 if the organization keeps output at August levels.
Top oil exporter Saudi Arabia said it reduced its oil production in August by 408,000 barrels per day to 9.597 million barrels a day from July, amid falling crude prices. OPEC also published output figures from secondary sources, which indicated Saudi Arabia reduced production by 55,000 barrels a day to 9.86 million barrels in August. Total OPEC output in August increased to 30.35 million barrels on account of higher production in Libya and increased exports from Angola.
Not surprisingly, most analysts believe — barring any major supply outage — crude oil prices have further to fall.
Gold dipped below $1,250 an ounce to hit its lowest since early June amid fears of an early hike in U.S. interest rates, a strong U.S. dollar and a waning of its safe-haven appeal as tensions between Russia and Ukraine ease. Media reports quoted Ukraine’s President Petro Porochenko confirming that Russia had withdrawn more than two thirds of Russian troops from Eastern Ukraine. The ceasefire, albeit a fragile one, appears to be holding, raising hopes that the worst of the five-month crisis is over.
Gold futures for December delivery on the Comex division of Nymex dipped to settle at $1,245.30 an ounce on Sept. 10, the lowest for a most-active contract since the beginning of June. Meanwhile, spot gold was fixed at $1,243.56 an ounce, recording its lowest point in three months.
Palladium also has come under pressure amid profit taking and the stronger U.S. dollar, with December Nymex futures in New York hitting a one-month low of $848.70 an ounce on Sept. 10 before settling at $849.05. Early this month, Nymex palladium hit a fresh 13½-year peak of $913 an ounce on concerns that the U.S. and E.U. would impose further economic sanctions on Russia for its involvement in Eastern Ukraine.
The 2 Sept. high of $913 an ounce represented a year-to-date gain of some 26 percent, a rise that has been driven largely on five months of fighting between pro-Russian separatists and Ukrainian troops in Eastern Ukraine following Russia’s annexation of Crimea. There were fears that Russia may reduce its shipments of palladium to world markets in retaliation against economic sanctions. Russia is the largest supplier of the precious metal, accounting for nearly 40 percent of world supply in 2013. The palladium market is already heading for its biggest global supply deficit this year.
Analysts said that nothing really has changed with palladium’s fundamentals.
“We had recently pointed out that the palladium price could see corrections in the short term despite possible additional economic sanctions against Russia because the increase in its price to over $900 per troy ounce was partly down to speculation,” Commerzbank said in its Commodities Daily note on Sept. 10. “That said, the tight market situation and the threat of supply outages mean that we anticipate higher prices in the medium-to-long term.”
Platinum, meanwhile, dipped to a seven-month low of $1,377.85 an ounce on Nymex on Sept. 10, basis the October contract, before trimming losses to close at $1,381. The spot metal was fixed at $1,377 in the a.m. fix on the London Platinum and Palladium market on Sept.11, its lowest fix since Feb. 4. In early July, the Nymex October contract hit a 10-month high of $1,515 an ounce.
Supply/demand fundamentals remain favorable for platinum-group metals (pgms), traders say. Demand from the auto sector, which uses both platinum and palladium in catalytic converters, is strong. In addition to Russia, there could be further potential supply issues from top platinum and second-largest palladium supplier, South Africa.
As noted here in late August, further labor strikes may erupt in the country if there are major job losses as a result of the three biggest platinum producers’ plans to restructure some of their South African operations. The five-month strike, which ended June 24, cost Anglo American Platinum, Impala Platinum and Lonmin more than 24 billion rand ($2.3 billion US) in lost revenue due to stopped production at most of their mining operations in the country.
Cocoa futures continued their downward trend, with December futures on New York’s ICE Futures U.S. exchange hitting a three-and-a-half-month low of $3,019.50 a tonne on Sept. 11. The second-position contract finished at $3,057.50 a tonne the previous day. In late August, December ICE cocoa hit $3,300 a tonne, the highest for a second-position contract since May 2011.
Liffe cocoa futures were also lower, with the December contract settling at £1,988 a tonne at midweek. Liffe December cocoa had touched a three-and-a-half-year peak of £2,061 on Aug. 29.
The slump in cocoa futures is being driven largely by a shift in market expectations of a small global supply surplus in the 2013-2014 cocoa year which ends Sept. 30, reversing an earlier anticipated supply deficit. The switch is on account of mainly larger than previously estimated main crops in Cộte d’Ivoire and Ghana as well as a stronger anticipated mid-crop in Cộte d’Ivoire, the world’s top cocoa producer.
Raw sugar futures also continued to head lower, with the spot October contract on ICE Futures U.S. dropping as low as 14.34 cents a pound at the time of writing on Sept. 11, the weakest since June 2010. Traders said investors rolling positions weighed on sugar markets before a contract expiration and news confirming higher-than-expected yields in Brazil’s main Center-South cane-growing region in the second half of August.
Sugar mills in the Center South produced 3.02 million tonnes of sugar from Aug. 16 through the end of the month, up from the 2.80 million tonnes produced in the first half of August, Brazilian sugar cane industry body, Unica said Sept. 9. Since the start of the season April 1, the Center South has produced 20.93 million tonnes of sugar, up 4.4 percent from the same period a year ago, Unica reported.
White or refined sugar for December delivery on NYSE Liffe settled lower at $419.40 a tonne at midweek, down $14 on last week’s finish at $433.40.
Uncertainty about the extent of drought damage to crops in key Brazilian growing areas is keeping the arabica market volatile. Benchmark arabica on ICE Futures U.S. settled lower at midweek, finishing at $1.8143 a pound, down 7.9 percent on last week’s close at $1.9745. Earlier last week, ICE December arabica touched a one-month high of $2.0995 a pound.
Meanwhile, robusta coffee for November delivery on Liffe hit a three-week low of $1,985 a tonne on Sept. 11. The November Liffe contract settled at $2,017 a tonne the previous day, down $63 on last week’s close at $2,080.
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.
