Oil

IN the New York market, US oil futures extended their move on October 30 after government data showed large inventory builds, further widening the domestic oil’s discount to the international benchmark Brent.

Disruptions to Libyan oil exports have cut supplies to Europe and Asia, while supporting Brent prices. The divergent courses of the North American and international oil markets boosted Brent’s premium over the US benchmark to more than $13 a barrel.

The US Energy Information Administration reported a sharp 4.1 million barrel rise in crude stocks in the US. Supplies at Cushing Oklahoma, the US oil storage hub, rose 2.2 million bales, its third straight weekly rise.

On October 31, Brent crude futures dropped more than $1 in the New York market, reversing the previous session’s gains, as traders booked profits and turned their focus to the end of the US refinery season, which is expected to boost demand for US crude. Brent crude for December delivery fell $1.02 to settle at $108.84 a barrel.

The US oil market is getting its first real taste of a remarkable phenomenon that may soon become a permanent reality: an excess of light sweet crude oil. With a swath of refineries shut down for routine seasonal maintenance this month, the unyielding gusher of crude from US shale wells and Canadian oil sand plants has temporarily overtaken demand from refiners, say analysts and traders.

Parts of the market have faced such gluts before. The storage hub in Cushing, Oklahoma, was filled nearly to capacity at times over the past two years, and Canadian and North Dakota producers have felt the price pain of surplus supply. More recently, the Houston area has been swamped by a deluge of Eagle Ford shale.

But for the first time since the onset of the shale revolution, the whole of North America seems to be in sync, as prices signal a market inundated with excess oil. Storage tanks across the nation are backing up, particularly along the Gulf Coast, a region perennially short of crude.

Gulf Coast refiners, who were running their plants at a record 95 per cent of capacity in July, have cut back to near 87 per cent, reducing their demand for crude by around 770,000 barrels per day because of maintenance. But they are starting to rev up again, drawing down swollen stocks and goosing prices.

While autumn refinery maintenance is a normal phenomenon, the impact of strong domestic oil production has deepened the market’s reaction this year. During these lulls in the past, refiners could generally cut back on imports rather than domestic crude, pushing the effects of the slowdown overseas.

This time, light sweet imports into the Gulf Coast have already dropped dramatically, as local crude has displaced them, causing more of the market weakness in the domestic market.

Crude imports this year to the Gulf Coast from the four largest sweet crude suppliers in the Organisation of Petroleum Producing Countries (Opec) — Algeria, Angola, Libya and Nigeria — fell to just 78,000 barrels per day in July. Three years ago, the four countries were shipping more than one million barrels per day.

Gold

GOLD fell 1.3 per cent to $1325.16 an ounce in the London market on October 31, having earlier fallen to its lowest since October 22 of $1321.34, after the US Fed announced that it would continue its monthly bond purchases. US gold futures for December delivery were down $24.30 an ounce to $1325. The metal had gained ground over the past two weeks.

Gold for delivery in December fell as much as 1.1 per cent to $1,335 an ounce, and traded at $1,337.90 on the Comex in New York on October 31, paring a monthly increase. Trading volume was 29 per cent below the average for the past 100 days for this time of day.

In the Singapore market, gold gained on October 29, edging closer to a five-week high, as weak US economic data boosted expectations for the Federal Reserve to maintain its stimulus measures, burnishing the metal’s appeal as an inflation hedge.

Gold prices have fallen nearly 20 per cent this year on fears the Fed could begin tapering its monetary stimulus, and as the unprecedented money printing failed to stoke inflation and investors sold metal from exchange-traded products (ETPs).

But the bullion has gained about eight per cent since marking a three-month low on October 15. Though a prolonged period of easy money could support gold, physical demand could take a hit due to higher prices. Demand in Asia has been subdued for a while.

In its latest announcement, the US central bank noted that there are signs of ‘underlying strength’ in the world’s largest economy. US consumer prices increased 1.2 per cent in the 12 months through September, the lowest since April. Holdings in bullion-backed ETPs are set to contract for a tenth month in October, and are down 29 per cent this year, after having climbed every year since the first such product was listed in 2003.

Spot silver tumbled as much as 1.9 per cent to $22.3212 an ounce on October 31 and was at $22.402, giving up slightly on a monthly gain. Platinum declined 0.7 per cent to $1,463.35 an ounce, also paring a monthly advance. Palladium lost 0.2 per cent to $744.55 an ounce.

This year’s drop in world gold prices has been deeply sobering for West African countries, from established producer Ghana to promising newcomer Ivory Coast. Until July, South Africa — Africa’s largest gold producer and the world’s fifth biggest exporter — had seen output decline for 27 consecutive months.

West Africa appeared destined take up some of the slack. From 6.7 million ounces — around eight per cent of the global supply — in 2012, output was expected to rise to 11 million ounces by 2015, mostly from production in the region’s top exporter, Ghana.

Nearly 12 per cent of all new gold discoveries over the last two decades have been in West Africa. Nowhere has this been more visible than in the Ivory Coast, which had long neglected mining in favour of agricultural commodities like cocoa, and which has only three producing mines. Its untapped gold potential fuelled a wave of interest after the end of a decade-long political crisis in 2011.

The impact on Africa’s third biggest producer Mali, where gold accounts for 75 per cent of export receipts and 25 per cent of GDP, is potentially even worse. Just two mines — Sadiola and Morila — historically accounted for 80 per cent of Mali’s output. Global interest in Africa’s economic boom is rising, but critics argue growth relies too heavily on natural resources, leaving it vulnerable to price fluctuations.

Africa’s biggest gold producer, AngloGold Ashanti, said in August that its cost structure in Ghana was unsustainable and that it would make cutbacks. It recently suspended excavation at the Yatela Mine in Mali, which it owns with Canadian mid-tier miner IAMGOLD.

Meanwhile, Canada’s Kinross Gold Corp recorded a net loss in the fourth quarter of 2012 due to two mines in Mauritania and Ghana, and . It now plans to cut 300 jobs, and has frozen expansion in Mauritania until at least 2015. Endeavour Mining, which has three gold mines producing more than 300,000 ounces per year in Mali, Ghana and Burkina Faso, has also planned cuts.

Coffee

BY the third week of October, coffee fell to the lowest in more than four years on surplus supply, as dry weather helped improve growing conditions in Brazil, the world’s largest producer and exporter. Arabica coffee for delivery in December fell 1.7 per cent to settle at $1.127 pound on the ICE Futures US in New York in the third week of October, after touching $1.123, the lowest since March 18, 2009.

Futures are heading for a third straight annual decline, the longest slump since 1993. The ‘recent favorable weather conditions’ prompted Goldman Sachs Group Inc. to lower its price outlook by 7.7 per cent, analysts said in an October 18 report. The commodity will be at $1.20 in three, six and 12 months, down from a previous forecast of $1.30, the bank said.

In the crop year 2012-13, global coffee production is estimated at 145.2 million bags, representing a 9.6 per cent increase over 2011-12. Robustas rose to 56.4 million bags; while Arabicas are provisionally estimated at 88.8 million bags.

In Brazil, Arabica production increased to 38.34 million bags, while Robustas rose to 12.48 million. Elsewhere in South America, Colombia is continuing its recovery following four years of below average production, with a total crop in 2012-13 estimated at 10 million bags.

Production in Peru, however, fell by 17.2 per cent to 4.5 million bags, with coffee leaf rust reportedly affecting up to 40 per cent of the coffee area. Damage from coffee leaf rust has also been a significant factor in Mexico and Central America, with total production in the region down 14.7 percent from 20.3 million bags in 2011-12 to an estimated 17.3 million in 2012-13.

Production in Vietnam is expected at around 22 million bags, while in Indonesia, output has soared by 74.7 per cent to 12.7 million bags, compared to 7.3 million in 2011-12.

Production in India is relatively unchanged at 5.3 million bags, while it declined in Papua New Guinea and Thailand. Coffee production in Africa has increased to some 18.4 million bags, with Ethiopia being the leading producer.