AFKI Commodities Report: Brent Crude Prices Fall To Four-year Lows

AFKI Commodities Report: Brent Crude Prices Fall To Four-year Lows

Crude oil prices slump further amid a global supply glut and slowing demand; Gold climbs to a four-week high on economic growth worries. Cocoa futures move up again as the market refocuses on concerns  that the Ebola epidemic in West Africa could spread to the two biggest producers, Côte d’Ivoire and Ghana, and disrupt supplies

Brent crude oil fell to the lowest level in four years this week and the U.S.’ West Texas Intermediate (WTI) traded at a two-year low as concerns that global supply is outpacing demand weighed further on markets.

Brent for November settlement on Oct. 15 finished at $83.78 a barrel on London’s ICE Futures Europe exchange, after earlier dipping to a fresh four-year low of $83.0. The settlement marked the closest close for the front month since late November, 2010. Brent for November finished at $84.47 (preliminary settlement price) a barrel on Oct.16, the day the contract expired.

WTI for delivery in the same month on the New York Mercantile Exchange (Nymex) dropped as low as $80.01, the lowest price in 27⅟2 months, on Oct. 15. November WTI clawed back some of the losses by close to settle at $81.78 a barrel.

In June, Brent had topped $115 a barrel and WTI had hit $107.26 on fears that the ISIS advance in northern Iraq could disrupt oil exports from the country.

Prices for Brent and the WTI have been plunging in recent weeks  amid burgeoning supply  and signs of  weakening global demand.  Crude output from the Organization of Petroleum Exporting Countries (OPEC) surged to a 13-month high in September with production rising 415,000 barrels a day from August to 30.66 million barrels, according to the Paris-based International Energy Agency’s (IEA) latest oil market report, released Oct. 14. The increase was led by higher oil output in Iraq and a continued recovery in Libya’s oil production.

U.S. crude output on the back of the country’s shale plays is running at the highest in almost three decades.  According to the IEA report,  global oil supply rose by almost 910,000 barrels a day in September to 93.8 million barrels.  Compared to a year earlier, total supply stood 2.8 million barrels a day higher, the energy organisation said.

At the same time, the IEA cut its forecast for global oil demand for this year by 0.2 million barrels a day from its month-earlier projection, to 92.4 million barrels a day, citing lower expectations of economic growth and the weak demand trend. The agency now forecasts annual oil demand growth in 2014 at 0.7 million barrels a day – the slowest growth since 2009, and “rising tentatively” to 1.1 million barrels in 2015 as the macroeconomic backdrop improves.

Gold reaches four-week high on global slowdown worries

After last week reversing its recent downtrend , gold  added further gains  this week to trade at its highest level in four weeks  as investor appetite for safe-haven assets was rekindled amid a U.S. equities’ sell-off and deepening  worries about global economic growth.  A weaker U.S. dollar and the slump in oil prices also helped support the precious metal.

Spot gold touched  a four-week high of $1,249.30 an ounce on Oct. 15 while U.S. gold futures on the Comex division of Nymex also hit a near five-week high of $1,244.80 an ounce.

Among the platinum group metals (pgms), platinum edged up from last week’s lows before easing back  while palladium continued to trade around the five-month low touched on Oct. 6. Concerns about global growth continue to weigh on pgm markets, prompting further liquidation in the metals, analysts said. Both metals are used in auto catalytic converters, with this end-use accounting for around two-thirds of palladium consumption and about 38% of platinum use.

Reflecting the country’s weaker economy,  vehicle sales in China, the world’s largest car market by sales, grew at the slowest pace in 19 months in September as demand for trucks and buses dropped off.  Total vehicle sales, which include passenger and commercial vehicles, rose 2.5 percent from a year earlier to 1.98 million units, the China Association of Automobile Manufacturers said on Oct. 13. This was the slowest pace since February 2013. Passenger car sales totalled 1.69 million vehicles in September, up from 1.5 million in August.

Platinum for January delivery, the most actively traded contract on Comex, settled at $1,272.30 an ounce on Oct. 14, $23.1 up on the Oct. 6 close at $1,249.20, which marked the lowest for the most-active contract since August 2009. But at midweek, platinum headed lower again, with the precious metal  for immediate delivery on Comex touching as low as $1,239.70 an ounce on Oct. 16 as at the time of writing. This marked the platinum price’s first descent below the price of gold since April 2013.

Palladium for December delivery  on Comex closed at $764.25 an ounce on Oct. 15, the lowest since March.

Cocoa market refocuses on Ebola fears

Cocoa edged up again this week amid increasing concerns about the potential for the spread of the Ebola virus to the world’s two biggest cocoa producing countries Côte d’Ivoire and Ghana, and the consequent disruption to their cocoa supplies. The two countries between them supply around 50 percent of the world’s cocoa.  Both Côte d’Ivoire and Ghana, where the main  cocoa-harvesting season began on Oct. 1., remain free of the virus, with no confirmed cases

But even a small number of Ebola cases in top producer Côte d’Ivoire, which alone typically accounts for around 40 percent  of world cocoa supplies, could have a huge impact in the cocoa market, analysts say.  Cocoa is grown on small plots in the country with growers selling their beans to middlemen who travel from farm to farm collecting the beans to transport to the ports for export.

The World Cocoa Foundation, an industry group based in Washington, DC and  made up of big name companies  in the cocoa and chocolate business such as  Nestlé, Cargill, The Hershey Company and Mars, has announced a $600,000 donation to support Ebola care and prevention efforts being carried out in West Africa by the Red Cross and Red Crescent Societies and Caritas.

December cocoa on New York’s ICE Futures U.S. exchange settled at $3,139.50 a tonne on Oct. 15, marginally up – by $1 -on the day. But on Oct. 8, the ICE December contract had dipped to $3,030 a tonne, the lowest for a front-month since late May as the market re-focused on signs of weakening demand of the key-chocolate-making ingredient. The front-month futures prices hit a 3⅟2-peak of $3,399 a tonne on Sept. 25 on concerns that the Ebola virus could spread to Côte d’Ivoire and Ghana.

Cocoa on London’s NYSE Liffe exchange was also higher this week, with the December contract finishing at £2,062 a tonne on Oct. 15, up more than $54 up on a week ago. In late September, Liffe December cocoa had climbed as high as £2,187 a tonne amid the worries about Ebola spreading to the top two cocoa-producing countries.

Concern about weakening demand for cocoa for the time being is capping the potential for price gains, however.  The European cocoa grind data for the third quarter, seen as a measure of demand for the chocolate-making ingredient, came in 1.1 percent lower from the same period last year at 327,866 tonnes, according to the Brussels, Belgium-based European Cocoa Association. The figures were in line with market expectations. The market now is looking to Asian third-quarter grind data, due to be released next week and also expected to show a year-on-year decline.

Arabica coffee futures remain supported by  concerns that recent dry weather in top producer Brazil’s key coffee-growing regions could further reduce next season’s output, although the weakness of the Brazilian real weighed on the market.  Severe drought conditions across central and southern Brazil caused extensive damage to the crop just harvested and is believed to have hurt the growing cycle of the 2015-2016 (April 1-March 31) crop. There are worries this second spell of dry weather could do further damage.

Arabica coffee for December settlement on ICE Futures rose to $2.2550 a pound on Oct. 6, the highest for a most-active contract in 2⅟2 years. This week, ICE arabica coffee for December traded as high as $2.2260 a pound on Oct. 15 before settling at $2.1735 a pound.

As with arabica coffee, the weaker Brazilian real weighed on sugar prices. The March raw sugar contract on ICE finished at 16.50 cents a pound on Oct. 15, down 0.34 cents on the day. Last week, ICE raw sugar futures  for March had touched a two-month high of 17.20 cents a pound, bolstered by a lower volume of cane crushing by Brazilian mills than had been expected in the second half of September due to rain.

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.