Saturday, 26 April 2014

Ukraine crisis drives Oil Gold Wheat agri commodities gain on weather

Ukraine remains a key driver of Oil, gold and wheat while agri commodities and softs such as Coffee, Sugar and Corn stood out on weather concerns. 
Ole S Hansen, Head of Commodity Strategy at Saxo Bank, in a weekly review, said that the broad-based DJ-UBS Commodity Index was on track for a fifth consecutive week of gains, with the index reaching the highest level in 13 months.

A continued recovery in industrial metals also helped not least copper which reached a 10-week high while nickel, now up by one-third since December, has risen in 11 out of the past 12 weeks.
Both coffee futures came top once again as the extreme Brazilian drought during January and February continues to trigger downgrades in the estimates for output of Arabica coffee this season and this will add to the expected global supply deficit over the next two years. Robusta coffee which is primarily produced in Vietnam could see next seasons output being negatively impacted by the increased likelihood of an El Niño event later this year. Sugar was another strong performer and looking ahead an El Niño event could negatively impact production in both South Asia with too little rain during the monsoon season and South America where the problem would be too much rain.

Gold continue find little to cheer about although the sharp 32 dollar bounce on April 24 was a clear sign that although long positions are being scaled back, the geopolitical worries related to Ukraine should restrain many from going aggressively short at the moment. Silver dropped through trend-line support at 19.30 and wiped out all the gains for the year but strong buying interest below resulted in a sharp recovery and the ratio to gold contracted after blowing out to 67 the relative cheapest silver level since August 2013.
Improving US data, a weaker dollar and lower bond yields have not prevented the outflow from exchange traded products to continue while hedge funds reduced net-longs for a third week during the week of April 15. The market look range bound for now with the risk of an escalation in Ukraine remaining the biggest supporting factor.

A geopolitical risk premium of between 5 and 10 US dollars continue to support crude oil futures and this is leaving hedge funds — which once again are holding near record net-long positions in WTI crude oil futures — with little interest in reducing exposure at this time. A surge in US crude inventories to a record high did leave the price of WTI crude underperforming Brent crude which found support from the Ukrainian tensions and Libya's continued failure in re-opening its ports for shipment of crude. As a result, Brent has seen its price premium over WTI crude widen back out to 8.5 USD/barrel after touching 3.25 USD/barrel two weeks ago. So far both varieties are being well supported by the escalating uncertainty about what could happen next in Ukraine. We see continued range bound behaviour near-term with Brent crude stuck between 108 and 112 USD/barrel and WTI between 100 and 104 USD/barrel.

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