U.S. crude oil prices gushed to a record over $94.50 a barrel Wednesday after a government report showed a surprisingly big decline in stockpile levels last week. And more declines in inventories could be on the way.

Energy analysts are saying the industry is selling off huge amounts of oil in storage because of the shape of the forward price curve — oil prices get cheaper for delivery out into the future — and the market may now be in a vicious circle…. or perhaps a hampster wheel.

“We’re in a hampster wheel right now,” said Stephen Schork, editor of the Schork Report. “Given the economics of what it takes to store oil, it makes no sense to hold onto inventory right now. Storage owners are taking the economically prudent step and dumping inventories because of the backwardated market structure.”

He explained that having a storage tank full of crude that loses value over time makes it a wise choice for energy players to sell onto the physical market now, rather than later.

“If you were managing storage for an oil company you could be sued for malpractice for adding to storage last week. This can only end when there is not enough prompt demand to sop up supply on the spot market. Only then can we switch back into a contango structure which would be conducive to building up storage levels,” he said.

NOTE: This post was edited to change the accompanying photo.

With gold closing in on $800 an ounce and crude on $100 a barrel, it’s natural to assume a close connection. Gold is supposed to hold its value better than other assets when inflation is rising, so many investors consider it an inflation hedge. A glance at a weekly graph plotting New York gold futures over crude oil futures shows that while joined at the hip during last bout of commodity buying, going back they have frequently parted ways. The correlation coefficient, a statisical measure of how closely any two variables (like gold and oil) trade together, was 0.58 averaged over October, on a scale of -1.0 to 1.0. Stretched over five years, its more like 0.21, showing gold and oil are nearly independent (zero being not correlated.) Moreover, even as the gold market gets excited about breaking the 1980 records at $850 in spot and $875 for COMEX futures, in inflation-adjusted terms gold’s value is not near a record. Crude at $100 is basically its highest price ever in absolute and real terms. But gold’s inflation adjusted record was put at $2,079 an ounce by consultants GFMS Ltd. Deutsche Bank said in a report last week that gold needs to rise another 74 percent to reach an all-time high in real terms. So it looks cheap compared to oil. Why is gold lagging? It’s a good question. Part of the answer can be found in a relatively non-scary inflation picture, that defies the record rally in energy prices and many other commodities. Also, gold is not “consumed” the way other commodities are, being more of a monetary asset (and an adornment.) So demand for raw materials to feed China’s economy is less of a factor.

A more compelling chart, (and prettier, if you like symmetry) shows gold’s inverse relationship with the dollar, which makes sense since gold is considered more of a currency than oil is. When the dollar goes down, gold often goes up and visa versa. The gold/dollar correlation is -0.76 in October and -0.54 over the longer period (full negative correlation is -1.0, think opposite ends of a seesaw). If the dollar keeps falling, gold could be expected in coming months to strike a nominal, if not a real, record high.

NOTE: This post was changed to correct a labeling error in the second graph.

Goldman Sachs, which shook up commodity markets two years ago with its prescient ’superspike’ theory that oil prices will top $100 a barrel, thinks it may be time for a short bout of profit-taking. 

After a 50 percent surge so far this year to $93 a barrel, crude is ripe for a temporary bout of “tactical” selling before resuming a climb that could take it into triple-digit territory, Goldman said. 

Gold and agriculture may also be ready for a little trim.

Goldman’s ’superspike’ theory says booming global demand for commodities will outpace new supply.

MasterCard SpendingPulse has been publishing weekly retail gasoline purchase data on a weekly basis since August in an effort to nail down actual American fuel consumption in a timely way.
 
Now it looks like the data could be used in predicting U.S. gasoline inventories as reported by the U.S. Energy Information Administration — a key headline for energy traders. The graph seems to show a negative correlation between SpendingPulse gasoline purchases and EIA gasoline inventories with two-week lag, though the relationship vanishes when U.S. refiners hit the brakes.

Two cold fronts have brought winds, waves and rain to Mexico’s Bay of Campeche, stopping the country’s crude oil exports and triggering an accident that left at least 21 offshore oil workers dead

The incidents propelled crude prices to a record high over $93 a barrel on Monday and highlighted the energy industry’s vulnerability to Mother Nature’s whims.

    The dollar at record lows, crude oil at record highs, the euro at record highs have been the impetus behind the Chicago Board of Trade markets for the last several weeks. There’s no reason to believe that will change in the week ahead.
    “The definitive driver was the outside markets,” one floor trader said after the CBOT markets closed on Friday, Oct. 26.
     CBOT soyoil hit a 32-year high of 41.55 cents a lb on Friday and December corn neared its 200-day moving average of $3.74-3/4, moving up as crude oil hit an all-time high of over $92 a barrel. Soyoil as well as corn are closely linked to the energy markets given the expanding biofuels industry which uses those feedstocks to produce ethanol and biodiesel.
    So any strength in the dollar or weakness in crude oil will have a negative impact on CBOT corn and soyoil, the soy complex leader, traders said.
    Wheat seems to be on another track — deflating after its all-time high of $9.66-1/2 a bushel last month when flour millers panic bought wheat on outlooks for the world’s wheat supply to shrink to a 30-year low in the coming months.
    December wheat tumbled 70 cents in the week ended Oct. 26, closing down 2 cents at $8 a bushel on Friday.
    “Friday’s closing wheat levels represented an outside close to the downside for the week from a technical standpoint. That might be the catalyst for further breaking action for next week,” one CBOT wheat options trader said.
    More bearish inputs for wheat surfaced by Saturday morning when Egypt announced it bought 190,000 tonnes of Russian wheat — none from the U.S. — after last week’s tender.
    Chicago wheat traders were also a little nervous about the Friday’s expiration of November options since December futures closed at the exact $8 strike price. (Since there’s no November CBOT wheat futures contract, anyone wanting to exercise a Nov $8 call or put would end up with December futures position.)
    Open interest in $8 November options was about 2,400 puts and 1,200 calls going into Friday’s session. While a fair amount of $8 options traded, there’s still the risk that firms holding long $8 calls or $8 puts could exercise them over the weekend.
    Depending on how many are exercised it could lead to some volatility near the $8 level in December wheat when the markets open Sunday night and continuing Monday morning, option traders said.
    For the week ahead traders will be monitoring the dollar, crude oil, and the following factors:
    South American planting weather. Brazil’s No.1 soy state of Mato Grosso was benefiting from recent rains. However, traders were a little uncomfortable with Brazil’s Rio Grande do Sul region which is getting too wet. More rains are forecast for the coming week.
    Export pace. The sliding dollar has helped the export pace. So traders will continue to react to any demand signals. Asia has had a steady appetite for vegoils, including soybean oil, and last week corn saw its 13th consecutive week of U.S. export sales over a 1.0 million tonnes.
    Midwest harvest conditions. The Midwest harvest is moving into the background as a price signal. After this weekend, the corn and soy harvest should be wrapping up soon. That should ease hedge selling pressure. There continues to be a smattering of disappointing soybean yield reports, so that’s helping underpin soybean prices.

     The Chicago Board of Trade wheat market may have fallen more than 10 percent from last month’s record highs but Friday showed that the market’s rally still has some legs.
    CBOT December wheat closed up the daily limit of 30 cents a bushel at $8.55-1/2, well below the record of $9.66-1/2 set in the March contract last month before profit-taking set in from the hot-money hedge funds and speculative pools which have powered the market to historic highs amid fears of coming global wheat shortages.
    That tight-supply scenario grabbed the market by the neck again on Friday as talk circulated that Russia will choke off its wheat exports by slapping on a tariff of as much as 30 percent. Russia has already set a 10 percent tariff to begin in mid-November.
    That move was a fresh signal to the world cash market that the breadbasket may only be offering crumbs for some buyers in the coming year, given drought-reduced wheat crops in many key regions including top exporters like Australia and Canada.
    CBOT March wheat also soared the 30-cent daily limit. Buying demand in December wheat options after futures locked up implied a close in December of $8.57-1/2, traders said.
    The bullish sentiment in wheat did nothing to hurt the nearby corn pit. Corn seemed to follow along, also getting some chart-based buying after advancing to near a three-week top when the December contract cracked nearby resistance at $3.68 a bushel this week. The high was made in the midst of an expected record large U.S. harvest of over 13 billion bushels.
    CBOT December corn closed up 3 cents at $3.70-1/4.
    Grain traders and analysts noted that the gains in both bellwether grains on Friday bucked the big tumble in the stock market, where the Dow Jones Industrial Average plummeted 367 points on earnings and subprime fears — on the 20th anniversary of the global 1987 market crash, no less.
    Commodities continue to draw in speculative funds from Wall Street, analysts noted, be they in the oil market (where crude hit a record $90 a barrel late in the week) or metals of grains. That seemed another element in the “flight to quality” seen on Friday as U.S. Treasuries soared as equities fell.
    Over in soybeans, however, it was a different story as  traders cashed in profits after a big run this week. CBOT November soybeans fell 8-1/4 cents at $9.83-1/4 a bushel and December soyoil down 0.43 cent at 40.56 cents per lb;
    Traders were sanguine about the day’s drops, however.
    Soybeans continue to be inspired by historic highs made in soyoil, a key food ingredient but where the biofuels craze — this time for soy-based biodiesel — has carved out a new, unexpected and powerful a piece of the demand pie. That is the same as in corn, where ethanol demand has kicked corn prices well above their decades-old historic levels of $2 a bushel.
    This week soyoil set a 23-year high at 41.14 cents per lb in the spot delivery, just shy of 41.15 cents made in May 1984. The next target will be 42.65 cents, notched on Nov. 14, 1974. The record high in soyoil is 51 cents made in October 1974.
    Are the markets getting “toppy?” Wheat’s bounce, corn’s strength despite a bin-busting harvest, and soyoil’s push all served as reminders of fundamental supply/demand strength.
    Analysts also note that the vaporous state of the U.S. dollar does not look set to change any time soon, given worries about credit crunches and recession. The Fed may want to raise interest rates, which would aid the dollar. But can it? No, analysts say, given weak economic signs emerging almost daily.
    The cheap dollar, therefore, while weighing on the Fed and the stock market, will continue to give importers of U.S. food and feed more buying power — and demand for CBOT grains.
    Things to watch in the coming week starting Sunday night, October 21 - 
     
    SPILLOVER EFFECTS FROM OUTSIDE MARKETS
    “We’ll be watching outside influences - the dollar, the stock market, gold and silver, the crude market - which were big influences this week,” one CBOT trader said.
    
    U.S. HARVEST WEATHER
    Chicago traders will also be watching Midwest forecasts to see if rains stop so farmers can resume harvesting corn and soybeans. Until the last week the U.S. harvest was ahead of schedule. But rains caused some slowdowns and boosted cash basis bids at many elevators. 
    The soybean harvest west of the Mississippi River, where the weather has been wetter, is under the greatest chance of being behind, traders said. The U.S. Agriculture Department will update its crop progress data on Monday afternoon.
    On the other hand, rains in the Plains (and Delta region) are good news for winter wheat prospects as soil moisture is replenished and next summer’s crops gets a solid start.
    
    SOUTH AMERICAN AND AUSTRALIAN WEATHER
    South American seeding weather is also improving, especially in Mato Grosso, Brazil’s No. 1 soybean region. Rains there last week were good enough that farmers were able to kick soybean seeding into high gear.
    The other key crop area CBOT traders are watching like hawks is Australia. Wheat crop estimates in the number two exporter have been cut drastically in the last two months by drought, a major factor behind CBOT wheat’s drive to record highs. But traders note that any rains in Australian wheat fields now will not only be “too little, too late” but also likely add to crop losses with early harvest under way.
    
    EXPORTS
    Last, but certainly not least, CBOT grain markets will be watching for — and expecting — continued strong export business as worried importers may continue studying their own and foreign crop prospects decide to hedge their bets and book even more supplies in a rising market.
    
    rtr chi cds

    Despite a bullish government crop report issued ahead of the Chicago Board of Trade opening on Friday morning (Oct. 12), wheat and soybeans took a nose dive as traders said much of the data was already priced into the markets. 
    CBOT December wheat closed 25-1/2 cents lower at $8.57-1/2 per bushel and November soybeans closed 4-3/4 cents lower at $9.76-3/4.
    “Today you could say it was buy-the-rumor and sell-the-fact,” said Prudential  Financial analyst Shawn McCambridge in Chicago.
    Corn, on the other hand, got a shot in the arm from the crop report. The December contract closed up 7-1/4 cents at $3.51 per bushel as USDA surprised traders by not raising its yield estimate, as many had expected of the record crop. 
    “Big crops get bigger,” is another old saw of the trading pits — but it didn’t work this time.
    With the USDA’s monthly production report behind Chicago grain traders, in the week starting Oct. 15 the pits will be focusing on:
    –Will stress in the southern Australian wheat crop be relieved by any rains? The dryness in the major exporter sparked the USDA to cut its estimate for the Australian crop by 7.5 million tonnes to 13.50 million.
    However, northern Australia is beginning to harvest wheat. So any rains there could damage the already reduced crop.
    –Will export demand for corn to stay strong? U.S. customers bought a whooping 2.3 million tonnes of corn last week. Strong export demand has underpinned the corn market all season, countering the effects of an expected record-large harvest of 13.3 billion bushels.
    — Will South American fields now being planted, especially in Mato Grosso, Brazil’s No. 1 soy state, get welcome rains? Mato Grosso has been hot and dry, delaying early soybean planting. But the region is now expected to see its first beneficial rains of the season this weekend. Any rains would weigh on prices in Sunday night screen trade. Additionally, some areas of Argentina needed rain, analysts said.
    — Will U.S. winter wheat planting keep lagging the season average? Parched conditions in the Texas Panhandle, southwestern Kansas and eastern Colorado are the main concern — these are all key growing areas for hard red winter (HRW) wheat, the par grade for delivery against Kansas City futures — and the main U.S. bread wheat for milling and export.
    USDA will issue its next crop progress update on Monday afternoon. Any rains in dry wheat areas will improve the HRW wheat outlook. Traders are also beginning to talk more about the strengthening La Nina, the Pacific Ocean weather anomaly that has a global effect — and could result in a dry fall and winter for the HRW wheat belt in the southern U.S. Plains.
    
    rtr chi cds

Ideal weather this fall across the U.S. Midwest is pushing the corn and soybean harvest along at a near record pace in many areas. Harvest for both crops was nearing the half way mark by October 5, with reports of strong corn yields continuing to filter into the Chicago Board of Trade markets — anywhere from 5 to 20 bushels an acre more than expected.Soybean yields were looking more variable — some fantastic at 50 to 60 bushels per acre but others looking more “iffy” in the southern Midwest, where it was dry late in the summer.

CBOT traders await the government’s next word on U.S. corn and soybean crop projections due out on Friday, October 12.

There has been a general trend among grain analysts to bump up their forecasts for corn, already estimated by the U.S. Agriculture Department at a record 13.308 billion bushels, reflecting an average yield of 155.8 bpa.

“Big crops get bigger,” is an age-old CBOT saying.

The big crop is the result of U.S. farmers planting the most corn acres in 63 years, enticed by a 10-year high in CBOT corn prices above $4 a bushel over the winter.

But on soybeans, opinions are mixed about whether USDA will raise or lower its current forecast of 2.619 billion bushels, with a yield of 41.4 bpa.

Memphis-based Informa Economics (nee Sparks), long seen as “smart money” when it comes to U.S. crop estimates, on Friday upped its forecast for corn production to 13.506 billion bushels, with an average yield of 158.1 bpa. But Informa cut its soybean production estimate from last month to 2.647 billion bushels, reflecting an average yield of 42.1 bpa.

In September, Informa had pegged corn at 13.323 billion bushels (156 bpa) and soybeans 2.664 billion bushels (42.1).

Another widely watched forecaster, FC Stone of Des Moines, Iowa, expects the corn crop at 13.445 billion bushels (157.4 bpa) and soybeans at 2.722 billion bushels (43 bpa).

In September FC Stone had pegged corn at 13.062 billion bushels (152.9 bpa) and soybeans at 2.682 billion bushels (42.4 bpa).