Commodity prices diverge amid US shutdown

Saturday, 05 October 2013

Commodity markets
Commodity markets

LONDON: Commodity prices diverged this week as traders largely reacted to the US government shutdown and its likely impact on the global economy.

OIL: Crude futures gained over the week as the dollar weakened heavily, in particular against the euro.

“Oil prices have held up relatively well in the last days against a background of the ongoing budget dispute in the USA, the easing of geopolitical risks and a marked increase in US crude oil stocks,” said Commerzbank analyst Carsten Fritsch.

This was to a large extent owing to a falling dollar which makes crude priced in the US currency cheaper for buyers holding rival currencies, pushing up demand.

The European single currency on Thursday hit an eight-month peak at $1.3646 on relief over Italy’s easing political turmoil and amid the budget impasse in the United States.

Oil won additional support Friday as companies began shutting oil and gas facilities in the Gulf of Mexico owing to Tropical Storm Karen.

“Prices are likely to retain a premium as Tropical Storm Karen makes landfall in the US shutting a number of key oil production sites in the US,” said Joe Conlan, analyst at British energy consultancy Inenco.

Karen churned toward the US Gulf Coast Friday, with forecasters warning of weekend flooding and heavy rainfall in several states, including Louisiana and Florida.

Authorities on the Gulf Coast have told residents to brace for a hit from Karen, as US President Barack Obama was briefed on disaster preparations, and his administration recalled hurricane emergency workers stuck at home owing to a government shutdown.

Obama has demanded an end to the four-day government crisis he decried as a reckless “farce”, piling pressure on Republicans to give up on their demands that he delays implementation of his healthcare law.

Traders were growing increasingly concerned at the lack of a breakthrough in the US budget stand-off that has closed parts of the government.

Global investors fear that the row will drag on into mid-October, when the government reaches its spending limit and is unable to pay its bills or service its debts.

If the borrowing limit is not raised the country will default, sending devastating shockwaves through the world economy.

Singapore-based Phillip Futures said in a note: “We expect market tension particularly in the form of weakening dollar and declining equities to continue and intensify respectively.”

Crude futures had begun the week by striking multi-month low points on Monday ahead of the shutdown.

But they recovered mid-week as news that TransCanada’s southern leg of its Keystone pipeline was near completion offset official data showing a larger-than-expected jump in US crude stockpiles.

According to media reports, TransCanada was nearly finished building its Gulf Coast pipeline, which will add another 700,000 barrels a day of capacity to move crude oil from the Cushing, Oklahoma delivery point for crude oil to the Texas Coast.

The opening of the pipeline could lessen the backup of crude flows into the Cushing depot, which has helped depress prices over the past couple years.

By Friday on London’s Intercontinental Exchange, Brent North Sea crude for delivery in November climbed to $109.06 a barrel from $108.49 a week earlier.

On the New York Mercantile Exchange, West Texas Intermediate or light sweet crude for November gained to $103.53 a barrel from $102.87 a week earlier.

Metals retreat:

PRECIOUS METALS: Gold prices hit two-month lows on US budget concerns before clawing back losses thanks to a weaker dollar.

Gold futures on Wednesday struck $1,277.15 an ounce the lowest point since August 7.

“Gold has largely pared the losses of midweek,” noted analysts at Commerzbank.

“Support is being provided by a weaker US dollar, due on the one hand to the budget dispute, and on the other hand to weaker US economic data. These two factors are making a prompt scaling back of bond purchases by the Fed less likely,” they added in a note to clients.

The US Federal Reserve last month decided against scaling down its $85 billion a month bond-buying spree, or economic stimulus policy which is known as quantitative easing (QE).

By late Friday on the London Bullion Market, the price of gold dropped to $1,309.75 an ounce from $1,341 a week earlier.

Silver edged up to $21.65 an ounce from $21.61.

On the London Platinum and Palladium Market, platinum slipped to $1,386 an ounce from $1,416.

Palladium declined to $706 an ounce from $725.

BASE METALS: Base or industrial metals retreated.

“The market turned increasingly nervous in front of the US shutdown and whether the debt ceiling would be raised on time to avoid a default situation,” broker Triland Metals said in a note.

By Friday on the London Metal Exchange, copper for delivery in three months fell to $7,190.50 a tonne from $7,287.25 a week earlier.

Three-month aluminium slipped to $1,821.50 a tonne from $1,835.25.

Three-month lead dropped to $2,055.50 a tonne from $2,111.

Three-month tin slipped to $22,900 a tonne from $23,430.

Three-month nickel declined to $13,590 a tonne from $13,955.

Three-month zinc retreated to $1,865.25 a tonne from $1,914.

Softs diverge:

COFFEE: Prices bounced back from multi-year low points struck the previous week on solid supply expectations.

By Friday on NYBOT-ICE, Arabica for delivery in December increased to 115.70 US cents a pound from 115.60 cents a week earlier.

On LIFFE, Robusta for November jumped to $1,729 a tonne from $1,647.

COCOA: Futures declined slightly.

By Friday on LIFFE, London’s futures exchange, cocoa for delivery in December dropped to £1,672 a tonne from £1,703 a week earlier.

On New York’s NYBOT-ICE exchange, cocoa for December fell to $2,587 a tonne from $2,617 a week earlier.

SUGAR: Futures hit six-month highs at 18.56 US cents on tighter supply expectations in Brazil. Courtesy AFP

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