Commodity Corner

Views on commodities and energy

Oil Market Contango Widening

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0709-contango-fig-11The spread between front-month oil futures and contracts for later delivery on the New York Mercantile Exchange (see Fig. 1) has widened dramatically this month. (See Fig. 2)0709-contango-fig-2The widening contango frequently portends a rise in inventories. For example, in Fig. 3, it can be seen that when the discount for fronth-month crude to second-month crude widened to near $4 a barrel earlier this year, inventories jumped to 19-year highs. The relationship between inventories and the outright futures price can be seen in Fig. 4. 0709-contango-fig-30709-contango-fig-41

Grain markets flashing warning signs

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Another food price spike could be on the horizon, analysts told Reuters. 
 
Consider these factors:
* Grain prices, led by soybeans, have been up since March. 
* South America’s crop is expected to be a disappointment. Crops in both Brazil and Argentina have a poor outlook. In fact, the U.S. Agriculture Department steadily lowered its forecast for Argentina’s soybean crop throughout the year.

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* Many will be looking to the United States to come through with a big crop. But U.S. soybean stocks began the 2009/10 marketing year at a five year low. That means there’s not a lot of surplus to keep prices level if there’s any type of disruption in supply or weather calamity.

Rising crude levels test Cushing storage capacity

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  Falling U.S. fuel demand due to the recession is building inventories and testing capacity limits at the key Cushing, Oklahoma crude storage hub. Crude Storage Levels at Cushing OK