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AFKI Commodities Report: Crude Prices Tumble Further

AFKI Commodities Report: Crude Prices Tumble Further

Crude oil futures hit fresh lows amid rising supply from the Organization of the Petroleum Exporting Countries (OPEC) and the U.S. at a time when concerns about slackening global oil demand are deepening. Brent crude at midweek slid to a more than 2⅟4-year  low whilst the U.S. crude benchmark, the West Texas Intermediate (WTI), fell to its lowest in 17-months.

WTI futures for November dropped as low as $88.20 a barrel on the New York Mercantile Exchange on Oct. 2, the first time the front-month contract has fallen below $90 since April 2013. November WTI had settled at $90.73 on Oct. 1, down $0.43 on the day and $2.81 below last week’s close at $93.54 a barrel.

Driven by the country’s shale drilling boom, U.S. oil production in August rose to its highest level – an estimated 8.6 million barrels per day – since 1986, the U.S. Energy Information Administration (EIA) reported in its monthly Short-Term Energy Outlook released Sept. 9. The energy body expects the U.S.’  crude oil production to average 9.5 million barrels a day next year, which if achieved, would be the country’s highest annual average crude oil production since 1970.

While U.S. commercial crude oil stocks fell by 1.4 million barrels during the week ended Sept. 26, as reported by the EIA in its Weekly Petroleum Status report on Oct.1, crude inventories at the key Cushing, Oklahoma, crude storage hub and the delivery point for WTI contracts, increased by 315,000 barrels last week.  Some analysts believe that it was this latter development in particular that weighed on U.S. crude prices.

Brent for November delivery on London’s ICE Futures Europe exchange had tumbled as low as $91.60 cents a barrel on Oct. 2, the lowest since late June 2012. This level was as much as $2.56 down on the prior day’s close at $94.16 a barrel and more than$5 on last week’s finish at $97.

Earlier this week,  Reuters reported oil supply from OPEC jumped to its highest in almost two years in September, averaging 30.96 million barrels per day up from 30.15 million barrels per day in August.

The Reuters survey is based on shipping data and information from sources at oil companies, OPEC and consultants. The production increase came on the back of  further recovery in Libya and higher output from Saudi Arabia and other Gulf producers in the face of sub-$100 per barrel oil prices, Reuters reported. State-run Saudi Aramco said on Oct. 1, it sharply cut official oil prices for Asian customers in November.

Analysts said this is the clearest sign yet the world’s largest exporter is trying to compete for share in the crude market.

Gold slips to nine-month low

Gold fell to its lowest level since early January, pressured by a strong U.S. dollar and the closure of markets in top buyer China for the National Day Golden Week Holiday (Oct. 1-7). Spot gold dipped as low as $1,204 a troy ounce on Sept. 30, a near nine-month low, before trimming losses as a retreat in the dollar and global equities boosted demand for the precious metal as an alternative investment.

Gold was fixed at $1,211.75 a troy ounce in London’s pm fix on Oct. 2.  On New York’s Comex, gold futures for December delivery finished at $1,215.50 a troy ounce on Oct. 1, up $3.9 on the day.

Until the recent dip, the U.S. dollar has been trading at a four-year high against a basket of other major currencies and a stronger dollar makes dollar-denominated precious metals more expensive for holders of other currencies.  Concerns about a U.S. interest rate hike sooner than had been earlier expected also has weighed on gold in recent weeks.

Demand for the precious metal by China remains weak. Commerzbank in its daily commodities report on Sept. 26, said China’s net imports of gold through Hong Kong were 33 percent down  at 497 tons since the beginning of the year though to the end of August compared with the same period in 2013, according to data from the Census and Statistics Department of the Hong Kong government.

Officially, all gold exported to China moves through Hong Kong, although the country recently started taking direct imports via Beijing.

“The weak gold demand in China is one key reason for the slump in the gold price over recent months,” Commerzbank said. “So far, the price slide has not sparked any revival of physical demand. Evidently buyers in Asia are holding back in anticipation of even lower prices. Thus, the gold price remains more dependent on Western investment demand.”