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Brent Crude Prices Stayed Above the $60pb Threshold through the Month of November

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Friday, December 15, 2017 /11:55AM / FDC 

Commodities market Imports
 

Oil prices

Brent crude prices stayed above the $60pb threshold through the month of November. This was primarily driven by tightening crude supplies, improved global crude demand, decline in global crude stockpiles, rising geopolitical tensions and expectations of an extension of OPEC’s output cut deal.

 

During the period, prices rose to a two year high of $64.27pb (the highest since July 2015) on November 6th as the anticorruption purge of several Saudi Arabian officials and royal family members raised expectations of Saudi support for extending OPEC cuts. Additionally, renewed tensions in the Niger Delta region which threatened Nigerian production also supported prices.

 

However, on November 16th, Brent crude prices took a downward plunge by 4.52% to $61.36pb on November 16th, the lowest in the month of November, before rising to $63.57pb at the end of the month. This was mainly driven by fears of rising US shale output and the International Energy Agency (IEA) lowering its outlook for demand growth in 2017/18 due to the warmer than expected winter period. Average Brent crude price was $62.87pb, 9.05% higher than October’s average of $57.65pb.

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OPEC and Non-OPEC members met at Vienna, Austria on November 30th to discuss progress, the possibility of an extension in production cuts and a possible exit strategy to minimize the likelihood of oil producers flooding the market after the deal’s expiry. In a bid to curb global oil glut and increase prices, members decided to extend production cut agreement through to the end of 2018.
 

Outlook

We maintain cautious optimism for oil prices, as higher oil prices create incentives for increased US shale production. US shale inventory levels continue to pose a threat to the effectiveness of OPEC cuts.

 

Oil Production

According to the oil cartel, OPEC, Nigeria’s domestic production declined by 9.5% to 1.738mbpd in October from 1.792mbpd in September. This was driven by force majeure as domestic upstream oil companies slowed production due to inventory buildup caused by cargo delays. Oil exports in October also slid, as Asian refiners (primarily Taiwan and China) increased their demand for more U.S. crude.

 

There has therefore been a buildup of excess cargoes as some tenders failed to clear Novemberloading crude. OPEC revised September’s production level to 1.79mbpd from 1.855mbpd, and August’s production to 1.802mbpd from 1.804mpd.

 

Outlook

Oil production is expected to remain flat around current levels of 1.73 – 1.8mbpd in the coming months due to OPEC’s decision to maintain the cap on Nigeria’s production at 1.8mbpd.

 

Natural Gas

Natural Gas traded at an average of $3.05/MMBtu in November. This represents a 4.81% gain in prices compared to the corresponding period in October. This was largely driven by rising demand due to cooler weather (winter season) and rising U.S. LNG exports. Additionally, production challenges in Indonesia bolstered prices.

 

Prices fell to the lowest on Nov 24th at $2.81/MMBtu due to expectations of increased global supply before closing at $3.03/MMBtu.

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Outlook

Natural Gas prices are expected to post stronger gains in coming weeks as cooler weather persists.

 

Cocoa

Cocoa prices strengthened during the period to reach an average of $2,119/mt in November, 1.63% higher than the previous month. Gains were driven by increased demand from Asia and expectations of lowerthanexpected output in Ivory Coast due to wet weather conditions. However, cocoa prices closed lower in November due to favorable weather conditions in Ivory Coast and rising global inventories. Prices reached a 10month high of $2,201/mt on November.

 

Outlook

Cocoa prices are expected to increase as demand for chocolate picks up in emerging markets and global supply is expected to drop to approximately 50,000metric tons.

 

Commodities market Imports

 

Wheat

Wheat prices closed at $4.33/bushel, 3.47% higher than $4.19/bushel in October. However, average wheat prices fell by 0.46% to $4.33/bushel from $4.35/bushel. Wheat harvesting which led to record global supplies (particularly from Russia), weak U.S. exports at 199,845tons below expectations (350,000 – 550,000tons) and a stronger U.S. dollar, depressed prices.

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Outlook

We expect wheat prices to decline further as Russia is expected to produce the second largest bumper harvest in 2018 (76.7mn tons).

 

Corn

Corn prices averaged $3.50/bushel in November, 0.24% higher than the average of $3.49/bushel in October. Dry weather conditions in Argentina, delay of corn harvesting in the US and a decline in global supply bolstered prices.
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Outlook

Corn prices are expected to be bearish in the coming months driven by ample supply glut as producers compete to gain market share of the increasing Asian demand. The U.S. Agriculture Department (USDA) raised its estimates for corn plantings by 0.6mn acres, corn stocks by 0.12bn bushels and corn production to 14.52bn bushels.

 

Sugar

Sugar prices maintained a bullish trend in the month of November. Sugar prices averaged $0.1496/pound in November, 5.13% higher than the average of $0.1423/pound in the previous month. This was due to an increase in global demand in anticipation of the festive season.

 

Prices reached a high of $0.1539/pounds and a low of $0.1423/pound.

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Outlook

Sugar prices will remain bullish in the coming month on increased festive demand.

 

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