Volatile Oil Prices in August


Wednesday, September 20, 2017 / 3:30 PM /FDC

Commodities Market Exports

Oil Prices
Oil prices in August were volatile. The shutdown of 20%25% of refining activities in Texas due to the effect of Tropical Storm Harvey, the slowdown in Chinese refining activities and the rise in U.S output weighed down on prices. In a bid to curb global oil glut, OPEC and non-OPEC members decided at a 2day meeting held in Abu Dhabi in early August to rein in on noncompliant oil producers. Expectations of lower OPEC output and global supply, after large oil companies curtailed production in the Gulf of Mexico ahead of Hurricane Harvey, caused prices to increase in the first week of August.

The shutdown of three oilfields in Libya due to pipeline blockades by Libyan militants in late August also bolstered prices. Despite global demand and supply fluctuations, average price of Brent crude was $51.87pb, 5.51% higher than July’s average of $49.16pb. From September 1st, oil prices have been on the increase. However, on September 8th prices took a downward plunge by 1.03% to $53.78pb. This was driven mainly by the aftermath of Hurricane Irma, which reduced demand for energy that just begun to recover from Tropical Storm Harvey and the likelihood of China reducing the capacity of its teapot refineries.

The market has recovered from the aftermath of Hurricane Irma as prices increased by 3.42% to close at $55.62pb as at September 15th. This was mainly due to expectations of a possible extension of OPEC’s output cut deal and reports of lower global crude oil stock.


With a compliance level of 89% in the month of August, oil prices are likely to remain bullish. This is due to expectations of deeper oil production cuts. Saudi Arabia has pledged to deepen its crude supply cuts by 10% in September to comply with OPEC’S output deal.

Oil Production

The recently released OPEC report showed an increase in oil production in Nigeria by 1.98% to 1.75mbpd in July from 1.74mbpd the previous month. The relative stability in the Niger Delta helped drive the output rise.


Oil production is expected to remain flat around current levels of 1.75  1.8mbpd in the coming months due to the OPEC production cap on Nigeria’s output. Nigeria was invited to attend the September 22 meeting. The likely outcome is that the cap on Nigeria’s production will be maintained.

Natural Gas

Natural Gas prices averaged $2.91/MMBtu in August, 1.70% lower than July’s average of $2.96/MMBtu. Prices fell to the lowest since Aug 9th at $2.82/MMBtu before closing at $3.04/MMBtu. Damage from the Tropical Storm Harvey disrupted gas production in the U.S golf coast. However, production losses were more than offset by reductions in demand due to cooler temperatures and power outages. Consumption in August is projected to be 12% lower than that of August 2016.

From September 1st to September 15th, Natural gas prices were volatile. The average price of the commodity within the review period was $3.00/MMBtu. The volatility in prices was primarily due to an increase in domestic LNG supply by 65 billion cubic feet which led to a fall in prices, and unplanned power outages in the U.K which bolstered prices.


We expect the market to remain oversupplied as the American Shale gas is set to kick off. With Hurricane Irma in sight, some parts of the US will experience cooler temperatures. These will dampen demand and keep gas prices below $3.00/MMBtu.


Average cocoa prices increased by 1.12% to $1,951/mt in August compared to $1,930/mt in July. However, cocoa prices closed lower for the 4th consecutive month in August due to robust supplies from the top 2 producers  Ivory Coast and Ghana. The increase in average prices was mainly due to technical buying driven by expectations of smaller crops in West Africa and stronger British pound.

Cocoa prices fell significantly on September 7th from $1,946/mt to $1906/mt – a 2.10% decrease. This was driven by increased global supply as Ivory Coast recorded its highest cocoa output of 2mn tons, expectations of a robust cocoa harvest in Nigeria and dampened demand. So far in September, cocoa prices are trading at an average of $1,950/mt (September 1st to September 15th).


Cocoa prices are expected to remain soft as demand continues to fall.

Commodities Market Imports


Wheat prices closed at $4.34/bushel, 8.43% lower than $4.75/bushel in July. Average wheat prices also fell by 11.95% to $4.51/bushel from $5.12/bushel. Wheat harvesting in major exporting countries, favourable weather conditions in the U.S growing regions and thinning demand for U.S wheat led to the bearish prices. Prices rose in early August due to expectations of a fall in U.S wheat supplies. However, the price increase was outweighed by robust global supply.

Wheat prices for the month of September have been bullish due to increased demand from Asian mills and supply concerns in the U.S growing regions. However, on the 7th and 8th of September, wheat prices fell despite adverse weather conditions in the U.S growing regions. Wheat is currently trading at $4.49/bushel (September 15) and at an average of $4.41/bushel (September 1st to September 15th).


Corn prices averaged $3.67/bushel in August, compared to $3.786/bushel in July. Prices on August 28th were up from more than 7 months low due to a weak U.S and concerns of dry weather curbing production in the US Midwest. However, expectations of an oversupplied global market due are weighing down prices. This is despite the decline in crop condition ratings by the USDA and limited rainfall which threatened corn plants during their yieldsetting pollination phase.

Corn prices have enjoyed a bullish trend in September due to heavy rainfall across Southern China, slashing supply in the market and increasing demand in the spot market. However prices fell on the 12th and 13th of September due to ample supply in the global market. Corn prices are currently $3.55/bushel (September 15) and average $3.56/bushel (September 1st to September 15th)


We expect grain prices to remain bearish in the shortterm due to an increase in global forecast by the USDA for wheat production by 15mn tons and corn production to 14.1bn bushels for 2017/18 season. Ample wheat and corn supplies in Australia and Europe will offset the effects of unfavourable weather in the US.


Sugar prices have maintained their bearish trend this month, averaging $0.1380/pound in August, compared to $0.1412/pound in July. Prices were dampened by import bans from India.

Sugar prices maintained a bullish trend in the month of September. This was due to expectations of Hurricane Irma causing havoc for Florida’s sugar industries just weeks before harvest of its sugar cane plants, weak E.U. sugar inventory and increased global demand.


Sugar prices will remain bullish in the next month on increased festive demand in India and a supply crunch due to damage of sugarcane crops by Hurricane Irma. However, the global sugar output for 2017/18 has been raised by 1.59mn tons to 7.14mn tons which could affect sugar prices negatively.

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