AFKI Commodities Report: Oil Sinks To Near 6-Year Lows

Written by Lynda Davies

The oil price plunge continues amid another big build in U.S. crude stocks. Gold falters on renewed U.S. interest rate hike concerns. Among soft commodities, cocoa falls to a one-year low amid weakening demand while both coffee and sugar trade lower.

Crude oil prices have come under further pressure, with Brent and the West Texas Intermediate (WTI) this week dipping to their lowest levels in close to six years. Crude oil prices are now about 40 percent down since the Organization of Petroleum Exporting Countries (OPEC) on Nov. 27 decided to leave its production target unchanged at 30 million barrels per day. The decision was widely seen as a move by the production group to pressure non-OPEC suppliers, particularly those producing tight  — or shale — oil, to cut output to help reduce the global surplus.

Brent for March settlement fell to a low of $47.57 a barrel on the London-based ICE Futures Europe exchange as trading got underway this week before clawing back losses to finish at $48.57. Brent subsequently found some support from new regulations for Chinese crude reserves, and by close on Jan. 29 finished at $49.13 a barrel. Nevertheless, Brent crude futures are on track to post a 14-percent fall for January, representing a seventh month of decline.

Under the new commercial crude reserves regulations, Chinese refineries will be required to store enough crude for 15 days of average throughput. This is expected to boost import demand for crude by China in the short term.

U.S. oil futures fell below $44 a barrel for the first time since April 2009 on Jan. 29 after government data showed that U.S. crude inventories are at their highest level at this time of year in at least the last 80 years. The front-month – March – WTI fell to $43.57 a barrel on the New York Mercantile Exchange (Nymex) before recovering to settle at $44.53, some 0.08 cents up on the day. March WTI finished last week at $45.59 a barrel.

According to the U.S. Energy Information Administration (EIA), inventories of U.S. crude saw an 8.9-million barrel build in the week to Jan. 23 from the previous week. The country’s commercial crude stocks have now topped 406.7 million barrels, according to the government body. Meanwhile, crude stocks at the key Cushing, Oklahoma, storage hub — delivery point for Nymex crude — continue to rise. Last week, stocks at the hub reached 38.9 million barrels, up from 36.8 million the previous week, and representing an inventory build of 6.8 million barrels since the start of this year.

Despite the short-term support from China, analysts see little prospect for a price rebound amid the continuing weak fundamentals, namely OPEC’s unwillingness to curb output, supply growth elsewhere and slowing consumption.

Meanwhile, gold traded lower this week, hitting its weakest level in two weeks on Jan. 29 as a strengthening  U.S. economy bolstered the case for higher interest rates. In a policy statement released on Jan. 28, the U.S. Federal Reserve indicated it remained on track to hike interest rates this year. The central bank said U.S. economic activity had been expanding “at a solid pace” but it also indicated that it would be “patient” in deciding to increase borrowing costs. It said it would take into account both “financial and international developments” when determining when to raise interest rates.  The reference to international market developments was the first in two years.

Spot gold fell to $1,251.86 a troy ounce on Jan. 29, representing its lowest value in a fortnight. U.S. gold for delivery in February on the Comex division of Nymex settled $31.3 down on the day at $1,254.60 an ounce. Comex February gold had finished last week at $1,292.6 a troy ounce.

Cocoa sinks to one-year low; arabica, sugar fall further

Among soft commodities,  cocoa traded at a 12-month low, extending a week of losses after an industry report showed Asia processed fewer beans than expected in the final quarter of 2014. The Cocoa Association of Asia said Jan. 23 grindings in the three months to Dec. 31 fell 17.2 percent year-on-year to 141,396 tonnes.

Grindings’ data are seen as a measure of demand for the key chocolate-making ingredient and the weaker-than-expected result from Asia underscored market worries about faltering demand. Fourth quarter processing data for Europe and North America announced in recent weeks already indicated larger-than-expected declines in those regions. A pickup in the pace of beans arriving at the main export ports in top buyer Côte d’Ivoire this week also pressured prices.

Cocoa for March delivery on New York’s ICE Futures U.S. exchange settled at $2,686 a tonne on Jan 29, the lowest level since early January 2014. March ICE cocoa had finished last week at $2,755 a tonne on Jan. 23. London cocoa settled at just £1,900 a tonne, a £37 decline on the week to date.

Analysts said they expected the weaker demand and ample global supply to drive cocoa prices still lower in the coming weeks.

Arabica coffee futures also continued to head lower this week, pressured by forecasts of much-needed rain in Brazil’s key coffee-growing regions. The prospect of rain is helping to assuage concerns over the development of the coffee cherries for the new crop. Harvesting is set to begin in April-May.

ICE arabica futures for March delivery in New York sank to $1.5870 a pound on Jan.29, the lowest since July 2014, before settling at $1.60, down some 7.7 cents on the day and down 2.45 cents a pound on the week so far.

Robusta coffee on the London-based ICE Futures Europe exchange finished $40 down on the day at $1,944 a tonne on Jan. 29 but some $13 up on the week so far.

Raw sugar was also trading lower, weighed down by reports that India soon could introduce raw sugar export incentives. Such a move would lead to even more of sugar circulating on an already oversupplied market.

March raw sugar on New York’s ICE Futures U.S. closed 0.31 cents down at 14.85 cents a pound on Jan. 29, after touching a low of 14.77 cents. March ICE raw sugar had closed last week at 15.17 cents a pound.

White, or refined, sugar also finished weaker in London. The March contract closed Jan. 29 at $384.60 a tonne, down $7.30 on the day and $8.8 a tonne down on the week so far.

Cotton bounces off  5.5-year low

Cotton futures reversed more than a week of losses after the U.S. Department of Agriculture (USDA) reported a surge in U.S. export sales of the fiber. The U.S., the world’s biggest cotton exporter, sold a net 546,000 480-pound bales of upland-variety cotton overseas in the week ended Jan. 22. This marked the biggest weekly export sales volume since the new season started on Aug. 1 and was 90 percent up on the four-week average, the USDA reported. Upland cotton is the most commonly grown variety in the U.S.

The  benchmark March ICE contract settled at 59.57 cents on Jan. 29, up 0.13 cents on the day. ICE March cotton had dipped to 57.30 cents a pound on Jan. 23, a level not seen since June 29, 2009, before trimming losses to finish at 57.30 cents.

Huge global stocks and sharply lower imports by top consumer and importer China weighed heavily on global cotton markets in recent months following Beijing’s decision to scrap its cotton stockpiling program in favor of direct subsidies to the country’s farmers.

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.