AFKI Commodities Report: Oil Prices Hit New Lows After OPEC cuts 2015 Forecast

Crude oil prices fall to fresh five-year lows after OPEC cuts its 2015 demand forecast. Gold finds support amid safe-haven buying. Among soft commodities, cocoa gains while cotton falls from 3⅟2-week high and arabica coffee dips to new 4⅟2-month low

Oil prices dropped sharply again after the Organization of the Petroleum Exporting Countries (OPEC) said it expects global demand for the group’s crude next year to be the lowest for a decade.

In its latest monthly oil market report, OPEC forecast demand for its members’ crude to decline to an average 28.92 million barrels per day (bpd) in 2015, down 280,000 bpd from its previous forecast, and more than 1 million bpd than it is currently producing.

In late November despite plummeting oil prices, OPEC opted not to cut its output target of 30 million bpd. The international Brent crude futures and the U.S. benchmark West Texas Intermediate (WTI) price, already trading at four-year lows, have plunged to their lowest in five years following the decision.

Brent crude for January delivery on the London-based ICE Futures Europe exchange dipped as low as $63.56 a barrel on Dec. 10 after OPEC released its December oil market report before settling $2.60 down on the day at just $64.24 a barrel. January Brent had finished last week at $69.07.

January WTI on the New York Mercantile Exchange (Nymex) followed a similar downward path, hitting just $60.44 a barrel on Dec. 10 before closing at $60.94, down $2.88 on the day. It had finished last week at $65.84 a barrel.

Brent and WTI are now down around 43 percent on their mid-June price spike that was driven by worries over supply disruptions following the ISIS insurgency in northern Iraq.

OPEC also has cut its forecast for world oil demand growth for 2015. The group sees global demand increasing by around 1.12 million bpd next year, some  70,000 bpd lower than its estimate last month.  OPEC now expects total world oil demand to reach 92.26 million bpd in 2015, mainly on account of a weaker outlook for Europe and Asia as well as Latin America.

OPEC expects  the strong supply growth from non-OPEC sources to continue next year, forecasting a 1.36 million bpd increase over the current year.  The biggest increase is expected to come from the U.S.

However, the group said supply growth could slow if “the current fall in crude prices continue over a longer period”.  OPEC believes the anticipated growth in tight crude (shale) and non-conventional NGLs production especially will be impacted if crude prices remain weak.

The  US Energy Information Administration (EIA) lowered its forecast of US oil production next year by 130,000 bpd to 720,000 bpd, and now sees output averaging an estimated 9.3 million bpd in 2015.

In its latest Short-Term Energy Outlook report, published this week, the EIA also cut its global consumption growth forecast for next year  to 880,000 bpd, from a 1.12 million bpd increase forecast last month.

OPEC reported  the group’s crude oil production fell in November to average 30.05 million bpd, based on secondary sources, from 30.44 million bpd in October.  The fall was on account largely of lower output by Libya and smaller decreases in Saudi Arabia and Kuwait, which offset higher production in Iraq.

Safe-haven buying boosts gold

Gold  climbed back above $1,200 a troy ounce to reach a seven-week high, supported by safe-haven demand amid a sell-off in global equities and a weaker U.S. dollar.

The spot price climbed to $1,238.20 a troy ounce on Dec. 10 , its highest in seven weeks. U.S. gold futures for February on the Comex division of Nymex hit $1,238.9 a troy ounce before settling $2.6 down on the day at $1,229.4 a troy ounce. This still represented a $39 gain on last week’s close.

Despite the recent gains, analysts believe gold prices are likely to remain vulnerable in the near-term on expectations that the U.S. Federal Reserve will raise interest rates sooner than previously anticipated amid signs of a continued  strengthening in the U.S. economy.

Cotton slips from 3⅟2-week high

Among soft commodities, U.S. cotton futures have found support after the U.S. Department of Agriculture  (USDA) this week cut its prospects for the U.S. crop.

At the end of last week, U.S. cotton futures had climbed to a 3⅟2-week high on  New York’s ICE Futures U.S. exchange after Australia, the world’s third biggest cotton exporter, cut its 2014-2015 cotton harvest estimate to a five-year low of 470,000 million tonnes, down from its September projection of 580,000 tonnes.

The USDA in its latest World Agricultural Supply and Demand Estimates report (Wasde), released on  Dec. 10, reduced its forecast for U.S. cotton production and the country’s ending stocks for 2014-2015 from its November’s estimate.

The government department now sees the U.S. crop lower by 474,000 480-pound bales at 15.92 million bales and ending stocks reduced to 4.6 million bales from the 5.10 million bales forecast in November.

Cotton futures for March delivery on ICE hit an intra-day high of 60.80 cents a pound on Dec. 10 following the news of the lower U.S. crop prospects. The U.S. is the world’s biggest exporter of cotton. However, ICE March cotton subsequently settled 0.31 cents down on the day at 59.57 cents as the market focused on the USDA’s higher forecast of global ending stocks for 2014-2015.

On Dec. 5, March cotton on ICE had touched a high of 60.91 cents a pound, its strongest level in a 3⅟2 weeks, before closing 0.78 cents down on the day at 59.64 cents.

The USDA has raised again its estimate of global cotton ending stocks for 2014-2015 by  720,000 bales to 108.08 million bales. While lower production is seen in the U.S. and Greece, with some smaller downward output revisions elsewhere, the U.S. government department reduced global consumption by nearly 1.3 million bales from its previous estimate, citing lower forecasts for China, India, Brazil, Pakistan and Turkey.

ICE cotton futures prices fell to a five-year low in late November, with the second-month March ICE contract dipping to 58.86 cents a pound.

Ample supplies and the prospect of sharply lower imports by top consumer and importer China following Beijing’s decision to scrap its cotton stockpiling program in favour of direct subsidies to the country’s farmers have been weighing heavily on global cotton markets in recent months.

The  stockpiling scheme made it cheaper for Chinese companies to import the fiber rather than buy home-grown product and over the three years it was in place provided significant support for world cotton markets and prices. The USDA currently is forecasting China’s cotton imports to more than halve to some 7 million bales in 2014-2015 from an estimated 14.12 million bales in 2013-2014 and down from over 20 million bales in 2012-2013.

Cocoa gains, arabica falls to new 4⅟2-month low

Cocoa futures on Dec. 9 climbed to their highest close since late October amid signs of tighter supplies and a weaker U.S. dollar. Cocoa for delivery in March on ICE Futures U.S. hit $2,958 a tonne before settling at $2,952, some $49 up on the day.

In London, cocoa for delivery in the same month on the London-based ICE Futures Europe exchange finished the day £17 higher at £1,949. Cocoa for March delivery on both exchanges eased back to $2,933 and £1,938 a tonne respectively by the close the following day, however.

The market found support on reports of lower year-on-year cocoa bean deliveries so far this season to ports in top grower Côte d’Ivoire.  According to Reuters, bean arrivals at the country’s ports since the start of the season on Oct. 1 totalled 532,000 tonnes as at Dec. 7, down from 609,000 tonnes in the same year-ago period.

A decline to a 3³/4- year low of 3.026 million bags on Dec. 8 in  ICE-monitored cocoa inventories and the falling U.S. dollar against other major currencies also helped boost ICE cocoa. As with other dollar-denominated commodities, it is less expensive for buyers using non-U.S. dollar currencies to buy cocoa when the dollar weakens.

Arabica coffee futures, meanwhile, continued to retreat this week amid an improving outlook for 2015-2016 production in Brazil, the top producing country and exporter. The arrival of rains in the country’s key coffee-growing areas in the center and south are seen as positive for the development of the upcoming crop.  Severe drought conditions early this calendar year damaged coffee trees in the main growing regions and impacted this season’s output.

Arabica coffee for March delivery on ICE Futures U.S. touched a fresh 4⅟2-month low of 176.95 cents a pound on Dec. 9, the weakest level for a second-month contract since July. March arabica subsequently trimmed losses to settle at 180.45 cents, up 2.40 cents on the day, but closed lower at 178.55 cents the following day.

Investor selling also weighed on robusta coffee prices. Robusta coffee for January delivery on London’s ICE futures Europe exchange settled at $1,975 a tonne on Dec. 10, after touching a 2⅟2-month of low of $1,963, and a full $63 weaker than last week’s close at $2,038 a tonne.

Raw sugar on ICE Futures U.S. rebounded from the 2⅟2-month lows seen last week as speculators moved back into the market and also finding some support in the falling U.S. dollar. March raw sugar on ICE had climbed to 15.47 cents a pound by close on Dec. 10, 0.05 cents up on the day and a 0.33 cents gain on last week’s close at 15.14 cents a pound. The front month contract dipped to a low of 15.02 cents on Dec. 4, its weakest level since late September.

White, or refined, sugar on  ICE Futures Europe finished marginally up on the week so far on Dec. 10, with the March contract settling at $398.80 a tonne, a $3.7 gain on last week’s finish at $395.10.

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.