Crude oil prices tumbled sharply after the Organization of Petroleum Exporting Countries (OPEC) decided Nov. 27 to keep its collective production target unchanged at 30 million barrels a day, despite a global crude oversupply and plummeting prices.
Not unexpected, the decision was announced following an official meeting in Vienna. Even so, Brent crude plunged $6.50 a barrel and the U.S. benchmark West Texas Intermediate (WTI) dropped almost $6 following the OPEC decision.
Ahead of the meeting, Arabian Gulf producer members — Saudi Arabia, Kuwait, the U.A.E. and Qatar — said they would not propose an output cut. Reinforcing an earlier statement, Saudi Arabia said it believed the oil market will stabilize. Some smaller members of the 12-country organization had favored an output cut to help drive a recovery in crude prices, which have slumped by more than a third since June.
Brent crude for January delivery slumped to a new four-year low of $71.25 a barrel on the London-based ICE Futures Europe exchange following the OPEC decision. It subsequently trimmed losses to close at $72.58, down $5.17 on the day. The U.S. WTI for January settlement dropped almost $6 a barrel to touch $67.73 in electronic trading on the New York Mercantile Exchange (Nymex), its weakest point since May 2010. The contract subsequently settled at $69.02 a barrel, down $4.67 on the day. Floor trading on Nymex was closed on Nov. 27 on account of the U.S. Thanksgiving holiday.
OPEC, which accounts for a third of global output, has been producing above its official target in recent months. Output averaged 30.25 million barrels in October and 30.48 million barrels in September, according to the organisation’s data. Analysts believe the current global crude supply surplus is in the order of around 2 million barrels a day. Some hoped OPEC producers would curb output to help arrest the slump in prices. However, the decision to retain the current production target is expected to push oil prices even lower.
At a time when global demand for oil shows signs of slowing, crude prices have fallen more than a third since June. Prices were already trading at their lowest in four years as U.S. crude production soared to its highest level in 30 years on the back of the country’s oil shale-drilling boom.
When OPEC made the announcement, WTI futures prices were already under renewed pressure following another sizable increase in U.S. crude inventories. The American Petroleum Institute (API) reported Nov. 25 a sizable 2.1-million barrel climb in crude stocks at the key Cushing, Oklahoma storage hub, the physical delivery point for Nymex crude futures, for the week to Nov. 21.
The U.S. Energy Information Administration in its latest weekly oil market report Nov. 26 showed a slightly smaller stock build at Cushing, indicating a 1.4-million barrel increase to 24.6 million last week. This marks the third week of gains at the storage hub. Even so, the Cushing stock level remains considerably lower than a year ago when the hub held some 40.6 million barrels of crude inventory, according to EIA data. The U.S. energy body also reported another increase in countrywide crude inventories for the week to Nov. 21, with another 1.9 million barrels added to stocks.
Gold continued to trade around the $1,200-an-ounce level during the first half of the week, despite strengthening equity markets and a strong U.S. dollar. But there were signs of weakening as the week progressed.
Gold for immediate delivery hit a near three-week high of $1,207.70 an ounce Nov. 24. U.S. gold futures for December delivery, meanwhile, touched a high of $1,203.8 an ounce on the Comex division of Nymex on Nov. 24 and Nov. 25, before settling at $1,195.7 and $1,197.1 an ounce respectively. At midweek, Comex December gold closed $0.50 down on the day at $1,196.60 an ounce. Floor trading on Nymex was closed Nov. 27 on account of the U.S. Thanksgiving holiday. Spot gold was fixed at $1,194.75 an ounce in the p.m. fix Nov. 27 in London.
The upward spike in gold prices followed an unexpected cut by China in the country’s interest rates. The rate cut was the first by Beijing in two years and is aimed at stimulating growth. Analysts said a pick up in physical demand for the precious metal from top consumer Asia also was providing some support for gold, although the expected hike in U.S. interest rates next year continues to weigh on prices.
Indian media reported that Indian gold imports already totaled 102 tons in the first half of November, as compared with 150 tons in all of October, Commerzbank reported in a daily commodities note Nov. 26.
“China’s appetite for gold is also increasing again. According to data from the Census and Statistics Department of the Hong Kong government, China imported 111.4 tons of gold from Hong Kong in October, the highest quantity since February. Net imports were 77.6 tons according to Reuters and 69 tons according to Bloomberg, the highest level in each case since March,” the bank said.
Chinese gold imports are at 643.2 tons since the start of 2014 — down around 35 percent compared with the same period in 2013, Commerzbank said. This will mean China’s gold imports will remain “well below the 1,000-ton mark” in 2014.
“But any lasting recovery of Chinese gold demand should nonetheless lend support to the gold price,” the bank said.
Turning to other precious metals, platinum is expected to post a third consecutive annual deficit in 2014, of 1.133 million ounces, Johnson Matthey reported Nov. 24 in a webinar of its November 2014 PGM market report. Palladium, meanwhile, is projected to record a global annual deficit for the fourth year out of the last five, with an expected deficit of 1.62-million ounces.
Analysts said in the report the deficits were due largely to the five-month strike in South Africa which ended in June as well as improving demand from the auto-catalyst sector. Palladium, they said, would have seen a deficit even without the strike due to strong auto demand and the launch of two exchange-traded funds (ETFs) in South Africa.
“The investment market is particularly strong this year with the launch of two new palladium ETFs in South Africa for the first time,” Rupen Raithatha, Johnson Matthey’s research manager in precious metals said. “At the time, demand from the auto sector sets another record, to help gross demand to exceed 10-million ounces for the first time.”
According to Johnson Matthey, gross platinum demand is 11 percent to 10.512 million ounces in 2014, from 9.497-million ounces last year.
Meanwhile, global platinum supplies are expected to fall 12 percent this year to 5.1 million ounces from 5.822 million in 2013, according to Johnson Matthey. Gross demand for the precious metal is seen falling 3 percent to 8.517-million ounces.
Nearby palladium futures on Comex were little changed, with the precious metal for January delivery settling at $1,228.40 an ounce on Nov. 26, up $1.10 on last week’s finish at $1,227.30. Comex palladium for December, meanwhile, closed $6 up at $801.60 an ounce on Nov. 26.
Ahead of the U.S. Thanksgiving holiday, cocoa futures on the New York ICE Futures U.S. exchange climbed to a two-week high on technically-driven trading. ICE cocoa for March delivery settled $47 up at $2,871 a tonne on Nov. 26. This was the highest for second-position cocoa since mid-November. It had closed last week at $2,822.
Cocoa for delivery in the same month on London-based ICE Futures Europe also was higher at midweek, supported by commodities trader Olam International’s forecast of a global cocoa deficit of more than 120,000 tonnes for 2014-2015 (Oct. 1 to Sept. 30). Olam says smaller main crops in top growing countries Côte d’Ivoire and Ghana are driving the deficit, Reuters reports. The forecast contrasts with some other market participants and analysts who predict a small global cocoa surplus for 2014-2015.
March cocoa on the London-based ICE Futures Europe exchange rose £12 to settle at £1,908 a tonne on Nov. 26, a £35-gain on last week’s finish at £1,873 a tonne.
Uncertainty over the supply outlook in top producing country Brazil continues to underpin arabica coffee markets. However, arabica coffee futures on ICE U.S. was trading below the one-month high recorded last week as forecasters predicted rains in Brazil’s key coffee-growing regions over the next fortnight. March arabica coffee on ICE U.S. settled at $1.9425 a pound Nov. 26, up 0.8 cents on the day. It had climbed as high as $2.0135 a pound Nov. 19, a level not seen since Oct. 22.
Robusta coffee for January delivery on ICE Futures Europe settled at $2,096 a tonne at midweek, unchanged on the day but up $20 on last week’s finish at $2,078 a tonne.
March raw sugar futures on ICE Futures U.S. closed higher at midweek, supported by good offtake in the past couple of weeks. The ICE March contract settled 0.12 cents up at 16.12 cents a pound Nov. 26, up marginally on last week’s close at 16.09 cents a pound. March white, or refined, sugar in London settled at $415.50 at midweek, down $4.20 on the day and $5.20 below last week’s close.
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