Commodity Corner

Americans lament higher gasoline prices

With the summer driving season, under way, American drivers are once again feeling the impact of higher gasoline prices on their wallets. Read the full story here. Martin Hogarty, a chauffeur from the Bronx, interviewed near a gasoline station on 46th St. and 10th Avenue near Times Square in Manhattan this week, said he’s paying double what he used to pay for gasoline to fill up the car he uses for his chauffeuring business, a GMC Yukon sports utility vehicle. Gasoline prices at the station stood at $2.77 a gallon.

For those who’ve decided to invest in more fuel efficient cars, however, the choice is now paying off. Jose Ferro, a cab driver who was also filling up at the 46th St. station began leasing a hybrid taxi about eight weeks ago said the higher leasing fee is already paying off as gasoline prices climb higher.

Ferro, 72, a retired television commercial producer, who has been driving a cab for about three years said he used to fork out $38-$45 to fill up the Ford he used to lease, compared with about $10 to fill up the hybrid, which means a little bit extra take-home pay.

Despite Americans’ complaints about the rising cost of gasoline, Reuters data shows that the price Americans are paying for gasoline is well below prices drivers in many other developing countries pay.

Gasoline spikes above forecast for summer high

While the summer driving season has been underway for only two weeks, gasoline prices have already blown expert forecasts for highs for the summer.

Average prices at the pump on Monday were $2.62 a gallon, according to AAA, up 16 percent from just a month ago, and over the $2.50 a gallon high that AAA had forecast for the entire summer. Last week, AAA spokesman Geoff Sundstrom said the group revised its forecast for the summer high to $2.75 a gallon.

Although prices are much lower than the $4 a gallon national average a year ago, experts say the prices will hurt American consumers already hard hit by the recession.

How are higher U.S. gasoline prices affecting you? Are you cutting back on other expenses in order to keep your car fueled up? Are you considering cutting back on driving? Are you worried about prices moving a lot higher?

No Place for the Faint of Heart:Chicago grains

Given the roller-coaster ride in Chicago grains last week as the dollar fell and rose, more volatility is likely in the coming week as investors weigh the health of the economy with the weather outside. Added to the mix will be the U.S. Department of Agriculture’s updated forecasts for the amount of grain and oilseeds left in storage bins this fall and a year from now.    “Last week has shown us the dramatic impact the dollar and crude has had on our markets. We’ll continue to watch those markets very carefully,” said Rich Feltes, senior vice president at MF Global Research.    As the dollar sank to its lowest level in 2009 on optimism the global economy is on the road to recovery, managed money flowed back into commodities, including the grains, rallying corn, soybeans and wheat to eight-month highs.  Demand for dollar-denominated commodities usually rises as the dollar falls. On the flip side, when the dollar rebounded on Friday, grain prices sank back on profit-taking.      In the days ahead, aside from the dollar and other “outside” markets like Wall Street equities that will reflect sentiment about overall economic demand, grain traders will be focused on USDA’s monthly supply-and-demand report to be issued on Wednesday morning at 8:30 a.m. EDT.    Analysts polled by Reuters expected the government to trim its key numbers: projected end-season stockpiles for soybeans and corn. Given strong export demand over the past month, U.S. soy stocks could slip near 100 million bushels, the lowest supply seen since August 1977, before the new harvest.    MOTHER NATURE ADDS PREMIUM TO CBOT GRAINS Dryness in the northwestern Corn Belt — Minnesota, South Dakota, northern Nebraska — coupled with constant rains in the southeastern Corn Belt remain supportive to Chicago Board of Trade grains as farmers struggle to get their new crop seeded and established.    The biggest worry is the shrinking window to plant corn in two key states — Illinois and Indiana — putting at least a million acres of expected corn production into a possible last-minute switch to soybeans, a faster maturing crop.    Those two states, which produce a quarter of the American corn crop, had some 3.4 million acres of corn yet to plant last week at a time when all seedings are usually complete. Southern areas of the states were the furthest behind. USDA will issue its next crop progress report Monday afternoon. “Agronomically, farmers can plant corn in the southern part of the state until the end of the month. But we know that corn planted that late simply has a lower yield potential,” said Bob Nielsen, extension agronomist at Purdue University in Indiana.   Farmers are now also bumping up against crop insurance deadlines, raising the stakes to make a firm decision. In Illinois and Indiana, June 5 was the deadline for farmers to decide whether to cash in full value on their insurance, plant corn, or switch to soybeans. Soybean farmers have until June 20.   The northern Plains is another worry, plagued not only by saturated fields after spring floods but chilly temperatures, dipping to below freezing in recent days. That could mean replanting as well as lost acreage for the year. Photo: Newly emerged corn in field near Gilman, Illlinois.

Did Rio turn the iron ore tables?

from Summit Notebook:

No more green shoots, but lots of bottoms

From the start, "green shoots of recovery" was not necessarily the British government's wisest choice of words and after a few months of being on everyone's lips, has given way to a more lowly metaphor. Business Minister Baroness Vadera raised the hackles of the political opposition in January when she spotted "a few green shoots" on a day of large-scale job losses and collapsing share prices. Evidence of economic revival is still elusive, but there are ever louder hints that we have at least seen the worst -- or bottomed, to use the mot du jour. Bottom as a noun and a verb was widely brandished by speakers attending Reuters Global Energy Summit this week, who based on their analysis on a slight increase in available credit, a tentative pick up in energy demand and rising commodity prices. OPEC Secretary General Abdullah al-Badri has an interest in spotting the kind of confidence that has driven oil prices up from a low below $35 a barrel in December to almost double that. "I have no doubt that the recession has bottomed out, but is it a V shape or a U shape?" he asked during a Reuters summit session. Others were less convinced and the most bearish of them all was a representative of the very oversupplied tanker market, where freight rates have sunk to their lowest levels in decades, with not a green shoot in sight. "We have seen lower than the bottom," said Erik Ranheim, a manager at oil tanker association Intertanko.

from Summit Notebook:

Oil: will speculators lose their shirts?

Rice University's Baker Institute Energy Forum Director Amy Jaffe says, like many other analysts we've spoken to this week at the 2009 Reuters Global Energy Summit in Houston, the supply and demand fundamentals for oil are not in sync. But, will oil investors continue to push prices higher through the end of 2009? Or, will they lose their shirts come December? Check out what she had to say...

What will drive oil prices for rest of '09? from Reuters TV on Vimeo.

from Summit Notebook:

Don’t mention the R word

Policitians are often scared to use the "R" word, because a recession makes them unpopular. Investment bankers dislike the "R" word too, but in this case it stands for regulation. Regulation and lots of it is being cooked up in Washington and Brussels in response to the excessive risk-taking that helped bring on the credit crisis. Credit derivatives are in the firing line as the bad guys of the credit crisis and derivatives in energy and commodities could get caught in the cross-fire. Oil could also take a hit after rampant speculation was blamed for driving the price to a record of nearly $150 a barrel last year. Although the quest to get rid of excesses is driven by good intentions, industry insiders say there will be unintended consequences and argue the regulators could have underestimated the difficulty of their task. "It's not easy to bring back the genie into the bottle," Libya's top oil official Shokri Ghanem told the Reuters Global Energy Summit.

from MacroScope:

Why are commodities surging?

Interesting take on the rise in commodity prices from Julian Jessop, chief international economist at Capital Economics. The rise has little to do with the weaker dollar and everything to do with expectations of global economic recovery, he says.

The broad-based revival in commodity prices since March clearly reflects a combination of factors. One of these is the pure accounting effect of the depreciation of the dollar. Other things being equal, a fall in the U.S. currency will of course put upward pressure on commodity prices when measured in dollar terms - commodity producers with bills to pay in other currencies such as euros and pounds will require a higher price in dollars, while consumers outside the dollar bloc will be more able to pay that higher price. However, the movements in currencies have generally been small compared to the underlying movements in commodity prices.

Looking closely at the relative performance of different commodities, Jessop reckons the rally has primarily been led by oil and industrial metals, which are the most sensitive to the economic cycle. Inflation-driven commodities such as precious metals, including gold, have underperformed in the rally, he says.

Jessop takes all this to mean that higher commodity prices are just another manifestation of the growth in confidence about the global economic outlook. However, echoing investors who increasingly want to see concrete evidence, he warns that the anticipated pick-up in growth-based demand has yet to actually materialise.

Is it all just an illusion, then? Wishful thinking that allows for a rebuilding of depleted stocks?

from LEGACY Reuters Summits:

The best geologists want to be in Tullow’s team

Tullow Oil is the Manchester United of the energy world -- at least when it comes to recruiting the finest talent. The oil industry has long complained of the difficulty of recruiting enough highly-qualified staff, but as Europe's largest independent oil explorer by market value, Tullow says it is a magnet for all those geologists ambitious to add discovering a new field to their CVs. "If you are successful, you will always attract... like everyone wants to play for Manchester United," Aidan Heavey, chief executive of Tullow Oil, told the Reuters Global Energy Summit. Many oil companies, he said, have ceased exploring, partly because of a difficult financial climate, partly because of a lack of opportunities. Tullow's exploration successes include major finds in Uganda and offshore Ghana. Apart from snapping up the finest geologists, Tullow has also been busy grabbing credit. Heavey said banks had made available $2 billion in credit in March this year. "It's a huge achievement in the current market," Heavey said. "It's probably soaked up most of the credit available for small oil companies."

from Summit Notebook:

OPEC’s special relationship with the U.S.

The United States may fondly dream of independence from imported oil, but it would do well to remember that the traffic is not one way. OPEC Secretary General Abdullah al-Badri told the Reuters Global Energy Summit he had been hearing for years that the world's biggest oil consumer was seeking ways to avoid importing OPEC oil, but he was confident it would carry on burning fossil fuel for years to come. "I am of an age when I can tell you I have been hearing this for the last 40 years," Badri said. "We will see another president, with two terms, before we see any change." He also warned the U.S. it should be careful what it wished for. "We would like to tell them they buy most of the resources of our member countries. We are sending them back more than 50 percent of that income to OECD countries, and the U.S. is one of them, to buy medicine, equipment, aeroplanes, spare parts, clothes." "Don't forget the medicine," he added.