Commodities bitten, again. Oil, gold and copper all fell (thanks in part to the stronger US dollar) overnight in another message to investors that tough times remain ahead into 2016. Copper hit new six-year lows around US$2.2175 a pound in New York, gold fell closer to new five-year lows at around US$1084 an ounce, also in New York, and US oil futures dipped under US$43 a barrel and seem to sliding slowly towards the US$40 mark by the time the OPEC meeting on December 4 comes around. Iron ore prices were just over US$48 a tonne last night, around US$4 a tonne away from seven-year lows hit in July.
The culprit: the weak Chinese industrial output and investment data for October (investment is now at 15-year lows). Crude steel production fell 3.1% to 66.12 million tonnes, cement and electricity production fell, housing starts fell 24% in October, copper and iron ore imports fell. But retail sales rose 11% in October from a year ago, a 10-month high, and new car sales jumped more than 11% thanks to the tax cut on cars with engines 1.6 litres or smaller. The Singles Day online sales (China’s largest online shopping event) on Wednesday brought record sales of more than US$14 billion (claimed), underlining the rise in retail sales as an indicator of the reshaping of the Chinese economy. — Glenn Dyer
Trading Places redux? But there is one commodity in a boom: US orange juice futures, which hit an 11-month high last night because of another cut in the forecast for the US orange — now estimated by the government at just 74 million cases, the lowest since 1964. The price was US$1.50 a pound overnight and has surged 50% since the start of October, when signs of disease in the Florida orange groves emerged and started reducing estimates of the size of the current harvest. Now for some big moves in frozen pork bellies and it’s Trading Places all over again (still the best movie on the markets ever). In fact after peaking well above US$1.70 a pound mid year, frozen pork bellies (bacon) are down around US$1.33 a pound thanks to a surge in production after 2014’s big shortage. — Glenn Dyer
Oil’s slippery slope. Back in November 2007, in its 2008 World Energy Outlook, the International Energy Agency, the key global energy forecaster warned: “A supply-side crunch in the period to 2015, involving an abrupt escalation in oil prices, cannot be ruled out.” Fast forward to last night and the IEA says the global oil market will remain oversupplied until the end of the decade, and while oil prices could remain around US$50 a barrel until then, the more possible outcome is for a price rise to around US$80 barrel.The IEA says oil demand will rise by less than 1% a year between now and 2020, slower than necessary to soak up the continuing glut of oil.
“Demand is not as strong as we have seen in the past as a result of efficiency [and climate] policies [globally],” IEA head Fatih Birol wrote, with growth in renewables further restricting demand for oil. The IEA does not expect crude oil to reach US$80 a barrel until 2020 under its “central scenario”, as excess supplies are slowly soaked up. After 2020, oil demand growth is expected to grind almost to a halt, increasing just 5% over the next 20 years, the IEA forecast. But on Monday OPEC said it saw oil supply and demand as coming back into balance in 2016. And the US Energy Information Administration, or EIA forecast this week that non-OPEC oil production would fall for the first time in eight years in 2016. Non-OPEC daily production rose 2.5 million barrels in 104, and the EIA had forecast a rise of 1.3 million for this year, but that has now been wound back to just 1.1 million barrels, and a fall of 300,000 barrels a day next year as production from the US shale sector falls. So it’s no wonder that oil prices in the US and Europe continue to edge closer to US$40 a barrel. — Glenn Dyer