With the US Federal Reserve looking as though it will keep its $US85 billion a month in bond buying going, commodities have been given a bit of a reprieve from a further shake out.
But you would not have thought that after gold and US prices took more hits to confidence last week, and copper also fell.
The relationship between commodity prices and the value of the US dollar will be the big short term driver, but that in turn will be influenced with what the Fed does.
There’s now a belief in the markets that Fed policy won’t change until the New Year – possibly the second quarter at the earliest.
Oil and gold are taking the brunt of the Fed’s policy, followed by copper, because the trio are big liquid markets which speculators and traders love (and oil is absolutely huge, given its importance to economies larger and small).
And adding enormous pressures to oil is the US fracking oil and gas boom, which is seeing weekly growth in production and stocks.
The Fed spending is probably preventing an even bigger fall in US oil and gas prices at the moment.
In fact the Fed’s spending is easing the pain for many US oil and gas producers (including BHP).
So, US oil futures endured a sixth consecutive week of losses on Saturday morning, our time, the longest stretch of weekly falls in about 15 years (according to Reuters) as traders continued to worry about the rising overhang in US crude supplies.
Although futures prices rose slightly on Friday for a small gain – Nymex December crude added 8c, or 0.1%, to settle at $US93.84 a barrel – prices still sank by just under 1% for the week.
The week before saw a tiny one cent fall, according to Bloomberg data, but the cumulative loss in the past six weeks is more than 9% which is a sizeable fall, thanks mostly to the ever increasing level of unsold oil in the US.
The six week fall in the longest since 1998 and reflects the continuing surge of US oil production from the fracking and tight rock sector.
In London, on the ICE Futures exchange, January Brent crude closed at $US108.50 a barrel, up 22c, or 0.2% on the day.
But prices saw a weekly gain of roughly 3%, the first rise in five weeks and reflective of the impact of normal industry supply/demand considerations (such as shortages of crude from Libya and Nigeria).
The spread between Brent crude in London and West Texas Intermediate crude traded in New York climbed well above $US15 a barrel on Thursday, the highest since March. On Friday, it stood at $US14.66.
This so-called Brent premium reflects the radically different supply/demand equations outside the US where the gush of new oil production continues to rise by the week.
The most tangible example of the changes being wrought by soaring oil production was on the level of support for ethanol use in petrol.
The US government has proposed restricting that by cutting the required use in petrol next year.
The rising production of oil and falling prices means there’s less need for ethanol (production of which is also rising because of subsidies).
The size of the suggested cut is 16%, which will in turn take pressure off corn and sugar prices in the coming year.
Meanwhile US gold futures edged higher on Friday, scoring their first gain in three weeks.
Comex gold for December delivery rose $US1.10, or 0.1%, to settle at $US1,287.40 an ounce in New York.
Prices jumped 1.4% on Thursday after it became clear the US Fed wouldn’t be cutting its bond buying yet – but markets know it is going to happen sooner rather than later.
For the week, gold futures added 0.2%, after losing 5.1% over the previous two weeks.
Comex December silver added a half cent to $US20.727 an ounce on Friday, after gaining 1.3% in the previous session.
Prices fell 2.8% for the week, which was their third weekly loss in a row.
Surveys on the outlook for gold and silver, released last week didn’t provide much confidence about the potential for gains in 2014 after the expected losses this year.
And Comex copper futures ended up a cent on Friday (after hitting a more than three-month low earlier this week on concerns about Chinese economic growth), and saw the December contract end at $US3.17 a pound, still down about 2.6% for the week.
The point to remember about copper is to watch what the Fed does with its huge bond buying program.
It is going to influence US bond yields, the value of the dollar and commodity price levels, and it could very well be we see periods of very volatile trading while markets try and reach new levels of equilibrium.
In other words, some commodity prices could be in for a rough ride in 2014.
