Commodity Blog

Archive for December, 2009

Crude oil gained in New York, touching a record level in 10 years, as cold weather in the U.S. pushed up prices for heating oil. Frosts will spread over the U.S. Midwest in the next five days, while most of the East and South will stay below normal through the middle of January.

Heating oil reached a 13-month record after forecast that temperatures through mid-January would be below normal. U.S. distillate supplies, including diesel fuel and heating oil, declined 2.06 million barrels (1.3 percent) to 159.3 million barrels last week. Refineries will need more crude oil to produce heating oil after its stockpiles have shrunk.

OPEC raised output this month to benefit from growing rising prices. The 11 members of the Organization of Petroleum Exporting Countries increased supplies by 115,000 barrels per day to 26.615 million per day.

February delivery for crude increased $0.4 (0.5 percent) to $79.68 per barrel by 11:09 on the New York Mercantile Exchange.

Latest commodity prices (ICE, NYMEX, CME) as of 15:08 GMT:

Oil (Brent) — $78.45
Gold — $1,100.40
Silver — $16.91
Copper — $336.35
Cocoa — $3,269.00
Sugar — $26.90
Corn — $416.50
Soybean — $40.15

Sugar futures gained for the third time in four sessions as traders increased buying to profit from growing supply deficit. Speculators were interested mostly in remaining in the long positions. Unfavorable weather conditions cut crops in Brazil and India increasing a global deficit. March futures for raw-sugar delivery increased $0.0046 (1.7 percent) to $0.2723 per pound as of 9:57 on ICE.

Orange-juice prices dropped to the week low after report that citrus harvest won’t be damaged by a cold weather. Possibility for some frosts remains but citrus harvest will be mostly untouched by a harsh weather. Orange-juice previously rose as hedge funds and other speculators were buying on concern that frosts will harm the fruits. March futures for orange-juice delivery fell $0.0275 (2 percent) to $1.379 per pound by 12:06 on ICE Futures U.S. in New York.

Latest commodity prices (ICE, NYMEX, CME) as of 18:11 GMT:

Oil (Brent) — $78.24
Gold — $1,092.25
Silver — $16.79
Palladium — $392.00
Platinum — $1,463.45
Copper — $7,350.00
Aluminum — $2,255.00
Nickel — $18,900.00
Zinc — $2,570.00
Cocoa — $3,265.00
Sugar — $27.04
Corn — $414.00
Soybean — $39.33

Crude oil is the raw material used in producing heating oil, gasoline, jet fuel, diesel and other petrochemicals. Three greatest oil producers in the world are the United States, Russia and Saudi Arabia. Crude oil prices directly affect the cost of home heating oil, gasoline, electric power generation and manufacturing. Being the major energy source, oil attracts attention of many investors. Oil price was steadily rising through 2009. Will this trend remain in 2010?

Let’s look at different factor influencing oil prices. As crude oil used in production of unleaded gas and heating oil, prices of these commodities can influence price of the oil. A very cold winter results in higher demand for heating oil, pushing prices for crude oil up. A very active driving season during summer vacations can boost the demand and, as a result, prices for crude oil. Obviously, potential world crises in oil-producing countries may also significantly boost prices of the commodity.

Generally, outlook for oil prices is rather positive. Global economy recovers and rebounding economy requires energy sources, spurring demand for oil. OPEC is expected to decrease its oil production. Production output of non-OPEC countries, while rising, will not offset growing demand for the energy source. Declining dollar forces investors to invest in commodities, like oil, as a hedge measure. Easing credit markets makes it cheaper to store crude oil. All these factors promise bright future for a crude oil.

Telling all this, we should remember that not everybody agree on such optimistic outlook. Some analysts insist that rising supplies, partially because of new technologies giving access to new drilling sites, will catch up demand and will drive oil prices down. Also declining dollar can make prices, measured in U.S. currency, somewhat misleading. Analysts point out that, while dollar prices have surged this year, prices measured in non-U.S. currencies rose not that much and actual oil prices were similarly increased not very much.

So, what price for the black gold can be expected in 2010? There are different opinions on this matter. Technically, long term support level exists at $50 per barrel. Actually, even most pessimistic predictions are not putting oil price in 2010 below $60 level. Another major support and resistance level rests at $75. Most analysts think that the commodity will be traded at this level or somewhat higher in the next year. There are forecasts that put prices as high as $90 in 2010 and even $110 in 2011. But we should remember about another resistance level at $100 which is hard to overcome both from technical and psychological points of view. Take all this factors into account when deciding your trading strategy for the oil but remember to watch market carefully as, in the end, it says what is right and what is wrong.

Latest commodity prices (ICE, NYMEX, CME) as of 17:58 GMT:

Oil (Brent) — $77.59
Gold — $1,092.13
Silver — $17.00
Palladium — $385.50
Platinum — $1,477.00
Copper — $7,265.00
Aluminum — $2,272.00
Nickel — $19,200.00
Zinc — $2,558.00
Cocoa — $3,246.00
Sugar — $26.79
Corn — $416.00
Soybean — $39.49

Gold prices dropped as rising dollar lowered demand for the precious metal as a hedge against inflation. Restoring U.S. economy returned confidence in the U.S. currency, driving the greenback up. Some investors also were selling the metal to make profit from high gold prices. February futures for gold delivery slid $9.80 (0.9 percent) to $1,098.10 per ounce on the Comex division of NYMEX.

Crude oil little changed, remaining at a five-week high, after heating oil jumped on forecast for cold weather in the U.S. and the dollar rebounded versus the euro. January delivery for heating oil increased $0.0293 (1.4 percent) to $2.1028 per barrel on NYMEX. U.S. oil stockpiles dropped 1.85 million barrels in the week ended December 25th from 327.5 million the previous week. February delivery for crude oil gained $0.1 to $78.87 per barrel on NYMEX.

Gold is a hot topic nowadays, experiencing high volatility, yet remaining primary investment medium. Precious metals have always been attractive to investors because of their tendency to keep their value. In times of economic crisis or inflation, for example, the value of paper money might fluctuate, but a hard asset will always be worth something. As a result, traditionally precious metals have been considered a ”safe haven” in times of crises of confidence and economic and financial instability. The question is: can gold keep on its rally? Or buying today would be buying high and selling low?

To answer this question we must consider factors influencing the precious metal. First, let’s look at two major factors on which gold depends: inflation and fear. Inflation usually occurs while the economy is growing. And, as result of growing economy, there’s little fear among trader and investors. Inflation makes investors to diversify, increasing gold appeal. In case when fear prevails, gold serves as a hedge against the unreliability of other kinds of financial assets. As you can see, the two conditions of gold’s performance are quite exclusive: if there’s inflation, there’s little fear, and if investors are fearful, inflation is likely to be subdued. If these two factors (fear and inflation) can somehow come together an optimal conditions for very sharp appreciation will be created. If dollar begins to decline uncontrollably, inflation would be inevitable, causing widespread panic and fear leading to the complete destabilization of the system. If the U.S. currency fails to inspire confidence as a source of value, gold could easily skyrocket to astronomical levels of many thousands of dollars. The problem with this scenario is that it is very difficult to expect the dollar lose its status as the global currency in the next five ten years except if a catastrophic economic cataclysm would destroy the international financial system.

Now we should consider other factors influencing gold. As side note, we should remember that all financial markets are mainly driven by the expectations of the events that may take place in the future, not by events themselves. And most expectations are either negative to the greenback (which is therefore positive for gold) or directly positive for the metal. Some of possible factors that are bullish for gold are: China is going to continue or even increase gold purchases; UAE, Saudi Arabia and other Arab banks are expected to fail, and they are stuffed with U.S. debt; U.S. is expected to have a double-dip recovery, which means another run from stocks and into gold soon; tension in the Middle East is growing; oil prices are expected to climb with the global economic recovery, causing the dollar to tumble; the Comex gold exchange in New York is expected to get in trouble as European countries demand return/delivery of their physical gold in masses; start of wedding season in India.

China is a very illustrative example of country, stockpiling gold on concern that falling dollar will shake the global economy. This country, being the largest gold producer expected to produce over 300 metric tons of the precious metal, does not export any. What’s more, it is going to build up its hold reserves to 10,000 tons over the next decade.

So, what conclusions can be made and what advices can be given? As you can clearly see gold is definitely bullish, remaining a reliable safe haven. Analysts estimate $850-$1,400 as a trading range in 2010. Instead of investing directly into the commodity at this late point in the game, many traders are purchasing future option contracts that allow them to speculate with leverage while managing risk. If you want to participate in the gold market, you have to decide what type of investor you are going to be. A long-term investor who thinks that gold will eventually reach $2,000 should not panic and may want to buy more on a correction. A short-term trader should have already been stopped out. Gold should not be purchased alone as an investment asset. Gold itself is speculative and is susceptible for highly volatile moves. That makes it too risky for the average individual investor. Taking all this into account we can say that gold should only be part of a diversified portfolio which includes other commodities (such as oil). While gold we talked about gold as a ”safe haven”, one shouldn’t think about this commodity as an investment only for troubled times. One of the greatest advantages of precious metals exists regardless of economic and market conditions. Therefore, investing in precious metals looks like a good diversification strategy for a portfolio comprised mainly of bonds, stocks and real estate.

Cattle futures went up and hogs advanced after the dollar slid, spurring the demand for commodities as an alternative investment. The U.S. currency declined versus a basket of six major currencies. February futures for cattle delivery added $0.00475 (0.6 percent) to $0.85225 per pound as of 10:06 on CME. February futures for hog’s settlement gained $0.004 (0.6 percent) to $0.0642 per pound.

Gold futures may decline as some investors sell after the precious metal reached a record high this year. Analysts think that gold rally is curbed until demand outpaces supply. February delivery for gold futures dropped $0.30 to $1,104.50 per ounce by 10:52 on the New York Mercantile Exchange’s Comex unit.

Latest commodity prices (ICE, NYMEX, CME) as of 16:43 GMT:

Oil (Brent) — $77.22
Gold — $1,103.92
Silver — $17.55
Palladium — $385.50
Platinum — $1,480.18
Copper — $332.00
Cocoa — $3,230.00
Sugar — $27.30
Corn — $414.25
Soybean — $38.93