Despite the easy money from the Fed’s huge quantitative easing spending, commodity markets are taking a battering, unlike equities. And doing much of the damage are the enormous pressures flowing from the US oil industry.
Major indices which track commodity prices have turned negative in recent weeks, dragged lower by the weakening state of the US oil market.
Bloomberg reported on Friday that that the Standard & Poor’s GSCI Spot Index of 24 raw materials lost 1.7% on Friday, its 2013 low so far.
That came as West Texas Intermediate crude fell below $US95 a barrel for the first time since June.
Gold fell to a two-week low in New York, US hog futures are in their longest slump for three months, cotton fell to its lowest level since the start of the year and corn fell to a three year low in Chicago.
That’s because although global stocks of grain are rising because of good growing conditions in the US and Europe, demand for corn is falling because of falling demand for corn and sugar-based ethanol for blending into petrol.
That has increased supplies of both corn and sugar, putting a lid on global prices.
Copper is not immune from changing demand/supply conditions either.
Rising supplies of copper (up 34% in the September quarter on 2012) has boosted London Metal Exchange stocks by almost 50%.
Global copper prices are down 9.7% this year (copper rose 0.7% last week).
While other factors (such as a rise in the value of the dollar) were at play last week, the impact of what’s happening in the US oil market is having a greater influence.
Thanks to rising production of oil from tight rock and fracking flooding the US market, stocks are rising because excess domestically produced oil can’t be exported because of laws stopping that happening.
In fact US oil production is now at its highest level in 24 years, but consumption isn’t keeping pace.
Instead it’s being stored in huge tank farms across the US, forcing down prices.
Oil imports into the US are falling, meaning there’s more oil available on global markets.
Just how long this goes on remains to be seen – certainly prices outside the US are much higher and being influenced by day to day events such as shortfalls by Nigeria and Libya in recent weeks.
But it was certainly a major development on Friday when surveys of manufacturing showed an 18 month high for China and a three and a half year high for the US – all usually reasons for oil prices to rise.
On Friday US oil futures fell for a fourth straight session and ended the week with more losses.
December crude fell $US1.77, or 1.8%, to settle at $US94.61 a barrel in New York. Futures prices lost 3.3% for the week.
Brent crude for December delivery fell $US2.93 to settle down at $US105.91 as the weakness in the US impacted demand and sentiment.
Bloomberg reported that lower refinery-crude processing and rising oil production have lifted US oil stocks by 6.6% so far in 2013.
Usually as the northern winter approaches, oil stocks are run down as refineries switch to running fuel and diesel oils.
But US oil production hit 7.90 million barrels a day in mid October, the highest since 1989.
Gold prices fell on Friday in New York where Comex gold for December delivery fell $US10.50, or 0.8%, to settle at $US1,313.20 an ounce.
Prices lost 2.9% for the week after rising in October.
Comex December silver closed down 0.1%, at $US21.84 an ounce Friday, down around 3.5% for the week after 0.7% last month.
The weakness in commodities prices has come despite stepped up buying by China in recent years and the post 2011 Queensland flood boom in coal prices and the surge in iron ore prices in the same year.
Both are not measured in the major indexes however, so the overall weakness is hard to track accurately.
But since hitting its all-time high in July 2008, the benchmark Goldman Sachs Commodities Index has fallen by 57%.
On Friday the Reserve Bank said its commodity price export index dipped 1% last month.
Looking at the figures, the fall is 24% in what are called Special Drawing Rights (which are made up of the world’s major currencies).
The strength of iron ore and coal prices might have come off, but they have helped to soften the downturn in prices as measured by the Goldman Sachs Index.
