AFKI Commodities Report: Crude Futures Rally On Possible OPEC production Cut, Libya Fighting
Crude oil futures remained under pressure at the start of this week, as slowing demand and ample global supplies continue to weigh on markets. Brent crude for November delivery on London’s ICE Futures Europe exchange fell to a 26-month low of $96.21 a barrel on Sept. 15. U.S. light, sweet crude for delivery in the same month on the New York Mercantile exchange (Nymex) dipped to $90.63 a barrel, close to the six-month low of $90.43 hit last week.
However, crude futures subsequently rallied on news reports quoting the Organization of Oil Producing Countries (OPEC) Secretary-General Abdalla Salem El-Badri that the group may cut its production target for 2015.
According to Reuters, he said OPEC may cut its daily output target to 29.5 million barrels in 2015, a 500,000-barrel reduction on current levels. The group has kept a 30-million-barrels-a-day production target since 2012. OPEC is scheduled to next meet in November.
The price rally may also have been helped by a reduction in output at Libya’s largest oilfield, El Sharara. State-run National Oil Corp (NOC) said on Sept.16 that the oilfield, which has a potential maximum capacity of 340,000-barrels per day, reduced production slightly after rockets hit an area close to the Zawiya refinery which is linked to the field. Libyan crude output has been rising in recent weeks.
NOC had put production last week at 810,000 barrels a day. This compares to a low of some 210,000 barrels a day in April.
There also is talk of potential disruptions of crude exports from Nigeria’s largest oil producer, state-owned Nigerian National Petroleum Corp. (NNPC), where workers began a strike on Sept. 16. The striking workers comprise only those who work for NNPC, and not the international oil majors which operate the country’s oil blocs and export terminals.
At the time of writing, there had been no impact on export shipments, according to a Reuters news report, which also cited some market sources as doubting the industrial action would have any impact on exports.
Brent crude for November climbed as high as $99.45 a barrel on Sept. 16 before closing at $99.05. Meanwhile, US crude futures, the West Texas Intermediate (WTI), for delivery in the same month on Nymex touched $95.19 a barrel before settling at $94.88. Brent finished lower at midweek, closing at $98.97 a barrel.
U.S. crude oil futures took a hit on Sept. 17 on a surprise climb in the country’s crude inventories. Commercial crude stocks increased by 3.7 million barrels to 362.3 million barrels in the week ended Sept. 12, the U.S. Energy Information Administration (EIA) said in its weekly oil status report.
The unexpected rise in countrywide inventories were offset partially by a decline in stocks at the key Cushing, Oklahoma oil storage hub, the delivery point for crude contracts and price settlement point for WTI. Crude inventories at Cushing fell to 20 million barrels a day for the week ended Sept. 12, a decline of 0.4 million barrels on the previous week.
U.S. oil product inventory data was mixed, gasoline stocks fell by 1.6 million barrels but distillate fuel stocks increased by 279,000 barrels, according to the EIA.
WTI for November delivery slipped to an intraday low of $93.74 a barrel after the report was released before paring some losses to close at $94.42, down $0.46 on the day.
Having started the week at an eight-month low amid waning safe-investment demand, gold initially clawed back losses before facing further headwinds as the market digested news from the latest U.S. Federal Reserve’s policy meeting held Sept. 16 and 17.
December gold futures on the Comex Division of Nymex fell to $1,226.30 a troy ounce on Sept. 15, the weakest for a most-active contract since Jan. 9, before settling the day at $1,235.1, up $3.6 on last week’s close.
But the precious metal saw further losses after the Federal Open Market Committee (FOMC) indicated it was on track to end its bond purchasing program in October. At the September meeting, the Fed – as expected – cut its monthly bond purchases by another $10 billion to a total of $15 billion.
Comex gold for December settled at $1,235.90 a troy ounce on Sept. 17.
Raw sugar bounces off four-year low
Among soft commodities, weak demand and ample global supplies continued to keep raw sugar prices under pressure.
The benchmark October contract on New York’s ICE Futures U.S. exchange dipped to 13.32 cents a pound during trading on Sept. 17, the lowest level since May 2010. ICE October closed the day’s trade at 13.99 cents, up 0.37 cents on the day.
Traders said the rebound likely came on the back of the low price levels stimulating some offtake.
White, or refined, sugar on London’s NYSE Liffe exchange traded up to finish $2.1 higher on the day, settling at $417.25 a tonne on Sept. 17.
ICE arabica coffee futures for December finished higher at midweek at $1.8623 a pound, up 2.6 percent on a week ago after Brazil’s National Food Supply Agency, Conab reduced its estimate for the country’s 2014-2015 (April 1-March 31) arabica coffee crop, where harvesting is coming to an end.
The new projection pegs arabica coffee output at 32.1 million bags, down on the agency’s previous estimate in May of 32.23 million bags. The latest output estimate, if proved correct, will be the lowest in five years for the world’s top arabica coffee grower.
Production has been hit by severe drought in Brazil’s main southern coffee-growing regions early this year. Brazil produced 38.29 million bags of arabica beans in the 2013-2014 season.
Earlier this month, ICE December arabica had touched a one-month high of $2.0995 a pound. Traders say arabica coffee futures prices are set to remain high amid the uncertainty over supplies from Brazil.
Conab raised its estimate for the Brazil’s robusta production, however, and noted the potential for further improvement. The agency upgraded its estimate for the harvest of conilon beans, a variety of robusta, for which output was raised by 700,000 bags to 13.03 million bags.
Conab upgraded Brazil’s total 2014-2015 coffee ouput (arabica and robusta) by 570,000 bags to 45.14 million bags. But the estimate is still some 4 million bags below last year’s production.
Top robusta grower , Vietnam, likely is on track for another record crop. Commodity trader Group Sopex forecast that the country’s 2014- 2015 harvest could rise above 30 million 60-kg bags, setting a record high. Volcafe earlier this month put Vietnam’s 2014-2015 harvest at 28.5 million bags.
Robusta coffee for November delivery on Liffe settled at $1,977 a tonne on Sept. 17, down $8 on the day, but still around 17 percent higher than where it started the year.
Meanwhile, ICE cocoa futures extended their rebound from last week’s 3½-month low, while Liffe cocoa also traded higher. The ICE December contract at midweek settled $80 up at $3,152 a tonne.
On Sept. 11, it had touched $3,057.50 a tonne, the lowest for a second-position contract in 3½ months. Liffe cocoa for delivery in the same month finished at £2,045 on Sept. 17, up £34 up on the day and more than £57 off last week’s low of £1,988 a tonne.
Cotton futures fall on China import worries
ICE cotton futures fell back this week amid increasing speculation that top buyer China shortly will make public details of its pilot subsidy scheme for the country’s farmers, announced earlier this year.
In January, Beijing announced it would scrap its cotton stockpiling program that has been running for the past three years in favour of direct farmer subsidies.
The stockpiling program stimulated import demand on account of high local prices for the fiber and has resulted in inventories in China now holding some 60 percent of the world’s stocks of the fiber, according to U.S. Department of Agriculture (USDA) data.
China’s cotton imports already have been falling ahead of the implementation of the new policy; August imports fell 27 percent on those of July and were 26 percent lower year-on-year.
Cotton for December delivery on ICE finished at 65.55 cents a pound on Sept. 16, down 0.29 cents on the day. ICE December cotton trimmed some of the losses to settle at 65.68 cents a pound.
Late last week, the December contract had climbed to 68.09 cents a pound, its highest close in two months following a USDA downgrade of its estimate for U.S. cotton production.
The U.S. is the biggest producer and exporter of the fiber and in its latest World Supply and Demand Estimates (Wasde) report released on Sept. 11, the USDA indicated an almost 1 million-480-pound-bales reduction in its forecast for U.S. cotton output in 2014-2015 compared with its August projection.
The U.S. government department now expects cotton output of 16.54 million bales, down from 17.50 million forecast in August and cited expected output reductions mainly for Texas – the country’s top growing state, Georgia and Arkansas following its second crop survey.
The cotton futures prices are now around 30 percent below the two-year highs reached in early May on worries about the impact of drought conditions affecting in particular the Texas cotton crop. The then most-active contract – May – had touched a two-month high of 95.10 cents a pound in early May.
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