Views on commodities and energy
The latest projections pointed Hurricane Ike toward the middle of the Texas coast, skirting to the west of the main region for offshore production in the Gulf. Nonetheless, oil companies have shut more than 95 percent of offshore production and 90 percent of refining capacity on the mainland. Weakening demand is still the driver for the market this morning; crude oil prices are under pressure
Elsewhere in the oil patch, an U.S. Interior Department report makes for unusually salacious reading, with claims that employees who oversaw oil drilling on federal lands had sex and used illegal drugs with workers at energy companies. “When confronted by our investigators, none of the employees involved displayed remorse,” inspector general Earl Devaney said.
The internal report on the department’s Minerals Management Service emerges a day after Democratic lawmakers in the House of Representatives unveiled legislation that, if passed, would permit offshore drilling at least 50 miles from U.S. coasts.
Some of the stories Reuters commodities reporters are tracking today:
House Agriculture committee hold hearing on price movements in agriculture and energy commodity markets
USDA export sales
US ITC releases base metals import data
A surprise cut in production from OPEC and Hurricane’s Ike’s looming presence in the U.S. Gulf of Mexico are supporting oil prices above $100 a barrel. Just a daily move? Not to some. On OPEC, UBS told clients: ”We think this is a serious deal for a real cut… In this market, direction matters and this is a turn.”
It’s hard to grasp just what’s behind the volatility in oil prices lately, says Jim Landers of the Dallas News, taking on the Bubble Theory for the $40 a barrel drop in oil prices since July 11. (Pictured above: Havana before Ike hit)
Hurricane Ike kept oil prices ahead Monday as the storm barrels toward southern Florida but the wider trend on crude prices is less clear. Credit Suisse cut its third quarter 2008 U.S. crude oil forecast to $120 per barrel and fourth quarter forecast to $110 per barrel.
Here are some of the stories Reuters is watching today in other commodities markets.
The Commodity Futures Trading Commission has quietly bumped up the proportion of oil futures it thinks are held by speculators after going over its data. The agency now thinks speculators held 48 percent of oil futures and options -not 38 percent as it previously thought.
The CFTC is not providing much information about the revision, saying only it followed consultations with the futures industry.
Gold’s oil-buying power is at its lowest in three years. (The chart shows the price of oil rising relative to the price of gold.) Hedge funds and other traders who play the gold/oil spread could be taking profits. Otherwise, this is hard to explain, since gold is considered a leading indicator of inflation.
In the past two weeks, crude oil prices rose to a record near $120 a barrel, while the spot price of gold fell from around $950 to $870 an ounce. Today an ounce of gold buys 7.65 barrels of oil. When gold was near $1,000 an ounce earlier this year, an ounce bought more than 10 barrels of oil. Gold’s weakest point relative to oil was in 2005 around 6 barrels.
Here are two outstanding examples of the ripple effects around the world when the dollar stumbles. Oil is at a record high at $110 and gold has topped $1,000 an ounce for the first time, while the dollar has fallen below 100 yen for the first time in more than a decade. Most commodities are priced in dollars, so the weaker the greenback, the cheaper it is for holders of other currencies to buy gold and oil. Gold is also generally seen as a hedge against oil-led inflation. Gold has jumped 19 percent this year on top of a 32 percent rise in 2007.