Amid burgeoning global supplies and slowing demand, crude oil prices plummeted again this week before a brief, modest upturn at midweek.
The U.S. benchmark, West Texas Intermediate (WTI) for December delivery on the New York Mercantile Exchange (Nymex), fell to a new two-year low on Oct. 27. WTI for December traded as low as $79.44 a barrel before settling at $81.29, down $0.66 on last week’s close. Brent for December settlement on the London-based ICE Futures Europe exchange dipped to $84.55 a barrel before closing at $86.25, $0.53 below last week’s finish.
Oil prices found some support — albeit short lived — on OPEC Secretary General Abdullah al-Badri’s media comments at the annual Oil and Money conference in London. Some analysts also reported a bit of short covering in oil markets.
According to Reuters, Al-Badri on Oct. 29 said there is no need to panic at the crude price drop as the market fundamentals do not reflect this low price. He said output of higher-cost oil supplies such as shale would be curbed if oil remained at around $85 a barrel, while OPEC enjoys lower costs and will see higher demand for its crude oil in the longer term.
In recent weeks, which have seen the price of Brent crude fall by more than a quarter since it hit $115.71 a barrel in mid June and of WTI drop from more than $107, the market has questioned whether OPEC will cut supply when it next meets on Nov. 27.
Al-Badri said the organisation’s output is unlikely to change much next year, suggesting that a move in November to cut output is unlikely, according to the Reuters report. OPEC has a production target of 30 million barrels per day. He gave no credence to suggestions that some of the bigger OPEC producers, in recently setting lower official selling prices, have opted to compete on price in order to maintain market share.
A number of analysts interpreted the comments as talking up the market.
Following al-Badri’s comments, Brent for December traded as high as $87.94 a barrel, its strongest in two weeks, before settling $1.09 up on the day at $87.12 a barrel. December WTI settled $0.78 higher at $82.2 a barrel after hitting $82.88 a barrel. The WTI was also helped by a lower-than-expected climb in U.S. crude inventories. The Energy Information Administration (EIA) on Oct. 29 reported a 2.1-million-barrel rise in U.S. crude stocks in the week to Oct. 24 against analysts’ expectations of a 3.4-million barrel build.
However, crude oil prices came under pressure again Oct. 30 amid a stronger U.S. dollar as markets speculated over whether the U.S. Federal Reserve will lift interest rates sooner than later, analysts said.
Brent crude for December delivery finished $0.88 lower at $86.24 a barrel while December WTI shed $1.08 to settle at $81.12 a barrel Oct. 30.
Early in the week, a report by Goldman Sachs Group showed the Wall Street bank had cut its forecasts for Brent and WTI crude prices in 2015 amid the rising global supplies. Goldman Sachs expects Brent will average $85 a barrel in the first quarter of next year, down from a previous forecast of $100, according to the report. Meanwhile, the bank is forecasting a WTI price averaging $75 a barrel in the three-month period, down from an earlier forecast of $90 a barrel.
According to the report, Goldman Sachs also believes any near-term cut in OPEC production will be modest until there is enough evidence of a slowdown in U.S. shale oil production growth. Global producers may need to cut almost 800,000 barrels a day of output in 2015 to limit a build in inventories and to ultimately balance the global oil market next year, the bank said.
Gold extended the losses begun last week as investors pulled out of the precious metal. The U.S. Federal Reserve provided an upbeat outlook for the U.S. employment growth and it ended its monthly bond-purchasing program aimed at stimulating the country’s economy. Analysts believe the Fed’s comments in a statement following the latest Federal Open Market Committee two-day meeting (Oct. 28-29) suggest the U.S. central bank could hike interest rates sooner rather than later.
Gold futures for December settlement on the Comex division of Nymex settled $26.3 a troy ounce down at $1,198.6 a troy ounce Oct. 30, a more than three-week low. Ahead of the Fed meeting, the precious metal had stabilised to trade at around $1,230 a troy ounce since taking heavy losses on Oct. 23 to end at $1,229.10. Fresh, robust U.S. economic data has dented investor appetite for gold. Earlier last week, Comex December gold had touched a six-week high of $1,251.70 as the market fretted about slowing growth in China and the Eurozone.
Analysts said uncertainty over the timing of the Fed rate increase was leading to a sell-off in gold. A stronger U.S. dollar against a basket of other major currencies was also weighing on gold sentiment.
Among other precious metals, platinum and palladium initially continued to find some support — possibly from speculative demand — but both were pulled down by the stronger dollar after midweek. U.S. palladium futures on Comex moved back above $800 an ounce on Oct. 29, with the December contract settling $7.5 up at $800.75 an ounce, before ending $20 lower at $780 an ounce on Oct. 30. Comex platinum for January, meanwhile, finished $23.5 down at $1,245.9 an ounce.
Raw sugar futures on New York’s ICE Futures U.S. exchange dipped below 16 cents a pound for the first time since the start of this month as the Brazilian real slid to its lowest level since December 2008 following Dilma Rousseff’s Oct. 26 re-election.
March raw sugar futures on ICE touched a 3.5-week low of 15.51 cents a pound Oct. 27 before settling at 16.05 cents a pound or 0.33 cents down on last week’s close.
A weaker real against the U.S. dollar spurs export-selling by Brazilian producers of dollar-denominated commodities like sugar. Also weighing on sugar markets in the light of Rousseff’s re-election was uncertainty about the country’s stance on ethanol and the product’s position in Brazil’s energy mix. Rousseff’s government has subsidised petrol at the expense of ethanol.
However, raw sugar futures finished marginally higher at midweek on short covering on concerns that the arrival of rains in Brazil could slow harvesting. The March ICE contract settle 0.17 cents higher at 16.30 cents a pound, remaining unchanged from that level at close on Oct. 30.
December white sugar on London’s NYSE Liffe exchange finished at $427.60 a tonne on Oct. 30, $3.60 lower on the day.
Arabica coffee futures on ICE saw further losses this week as the arrival of rains in key coffee-growing areas in Brazil eased worries about damage from dry weather to the 2015-2016 (April 1 to March 31) crop. Arabica coffee for December settlement dipped as low as $1.88 a pound on Oct.27 before settling at $1.9090, down 60 cents on last week’s close at $1.9150 a pound. By Oct. 30, the ICE December arabica contract was little changed, settling at $1.876 a pound.
Robusta coffee on London’s NYSE Liffe exchange was lower, closing at $2,036 a tonne on Oct. 30, down $6 on the day.
The prospects of ample new crop supplies from West Africa, especially top grower Côte d’Ivoire, continue to pressure cocoa markets, which for the time being seem to have “factored in” the concerns of Ebola spreading to the region’s two biggest producers.
Cocoa futures on ICE slipped to their lowest since first half May as the West African crop prospects triggered selling. The December ICE contract traded as low as $2,900 a tonne Oct. 29 before settling at $2,937 a tonne, $14 up on the day but some $100 down on last week’s close at $3,037 a tonne.
London December cocoa on Liffe fell to a more than five-month low of £1,888 earlier on Oct. 29 before settling £16 up at £1,915 a tonne. Liffe December cocoa had finished last week at £1,984.
Cotton futures on the ICE Futures U.S. exchange, meanwhile, rose to a three-week high Oct. 29, buoyed by traders’ short-covering amid nearby tight supplies. The most active contract — December — traded as high as 65.99 cents a pound before closing some 0.88 cents up at 65.35 cents. ICE cotton futures eased back Oct. 30, shedding 0.85 cents to settle at 64.50.
Cotton futures, which recorded a five-year low of 60.83 cents a pound Sept. 24, basis the December contract, are expected to come under renewed pressure as harvesting in some of the biggest producing countries gathers pace. Top exporter, the U.S. had harvested some 42 percent of its cotton acreage in the week ended Oct. 26, up from just 29 percent a week earlier according to a U.S. Department of Agriculture (USDA) weekly crop progress report released Oct. 27.
The U.S. is expected to harvest 16.26 million 480-pound bales in the 12 months to July 31, 2015, the biggest crop in two years, according to the USDA’s most recent World Agricultural Supply and Demand Estimates report (Wasde) published Oct. 10. The country’s crop year-end inventories of the fiber are forecast to reach 4.9 million bales — double the estimated 2.45 million at the end of the 2013-2014 crop year, amid a forecast fall in exports to a 14-year low of 10 million bales, the USDA data indicated.
The world’s second largest producer, India, is expected to harvest a record 40 million 170-kilogram bales this season, up from 39.8 million bales last year, according to the country’s Cotton Advisory Board earlier this month.
The higher output comes at a time when top consumer and importer China is in the process of scrapping its cotton stockpiling program that has been running for the past three years in favour of direct farmer subsidies. Beijing’s proposed shift in policy was announced in January and has been weighing on cotton markets since then. The stockpiling program provided significant support for world cotton markets and prices given that it drove significant import demand.
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.
