Commodities Charging On - The Next Bull Phase / KLCI 1,100 Gone Soon

Two pieces of important information which should impact on markets over the near term. First one is oil, which is being pushed higher. The second one is on soyabean prices, which ill drag palm oil higher as well. I think following the inventory work down, funds and genuine buyers are beginning to stockpile. The bookings as reflected in Baltic Dry Index would lend credence to the sustainability of hard and soft commodities run up. Overweight palm oil stocks. The initial run for the last 3 months was more due to recovery in financials. It looks like this run (bear market rally or whatever you want to call it) may have some legs left in it.

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June 10 (Bloomberg) -- Global proved oil reserves fell last year, the first drop since 1998, led by declines in Russia, Norway and China, according to BP Plc. Oil reserves totaled 1.258 trillion barrels at the end of 2008, compared with a revised 1.261 trillion barrels a year earlier, BP said in its annual Statistical Review of World Energy posted on its Web Site today. The world has enough reserves for 42 years at current production rates, BP said.

BP and other oil companies are struggling to replace reserves as access to deposits becomes harder and older fields in places like the U.K. and Mexico are depleted. Russia passed a law last year that limits foreign ownership in some of the country’s biggest energy and metals deposits. Middle East countries, which hold 60 percent of global reserves, restrict access for international companies.

“Our data confirms the world has enough reserves of oil, natural gas and coal to meet the world’s needs for decades to come,” BP Chief Executive Officer Tony Hayward said in his introduction to the report. “The Challenges the world faces in growing supplies to meet future demand are not below ground, they are above ground. They are human, not geological.”

Saudi Arabia’s reserves, the world’s largest, stood at 264.1 billion barrels, little changed from 264.2 billion a year earlier, BP said. The Middle East as a whole holds 754.1 billion barrels, compared with 755 billion barrels last year.

“Declines in Russia, Norway, China and other countries offset increases in Vietnam, India and Egypt,” BP said on its Web site.

Canadian Oil Sands

Including Canadian oil sands deposits of 150.7 billion barrels, total global reserves stood at 1.409 trillion barrels, the review said. BP made an upward revision to 2007’s global oil reserves of 23.1 billion barrels, with the largest increases in OPEC members Venezuela and Angola. None of the biggest international oil companies have replaced output through new discoveries or extending fields in the past six years, Sanford C. Bernstein & Co. said in an April 2 report. Companies such as Royal Dutch Shell Plc, Europe’s largest oil company by market capitalization, are looking at acquisitions to boost reserves, Bernstein said.

BP said the estimates in today’s report are a combination of official sources, OPEC data and other third-party estimates. Oil reserves include gas condensates and natural gas liquids, as well as crude oil.

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Published: June 10 2009 11:38 | Last updated: June 10 2009 20:05

Soyabean prices rose above $12.50 a bushel to a nine-month high after the US government warned on Wednesday that soya stocks in the world’s largest exporter of the commodity will drop to the lowest level in 32 years. The Department of Agriculture said by August 31 stocks of soya would drop to 110m bushels, the lowest since stocks fell to 103m bushels in 1976-77.

Hussein Allidina, head of commodities research at Morgan Stanley, said inventories had reached a “precarious” level. The US exports about 45 per cent of the world’s soya.

CBOT July soyabean rose to an intraday high of $12.55½ a bushel, up 30 per cent so far this year. The new crop contract – CBOT November – rose to $10.81½ a bushel as the USDA also cut its forecast for 2009-10 stocks. CBOT July soyameal jumped to $414.4 per tonne, less than 10 per cent below its all-time high of $456.8 per tonne set last July.

Soyameal is the key feeding commodity for hogs, chicken and turkey; its rise suggests an imminent surge in meat and poultry costs. Corn prices rose as the USDA painted a bullish picture, with 2009-10 corn stocks approaching the key 1bn bushels mark. CBOT July corn rose to $4.49 ¾ a bushel, although it later traded flat at $4.44.

Wheat dropped as a forecast of lower consumption offset a drop in supply in 2009-10. CBOT July wheat fell below $6 a bushel, though the new crop contract of September traded at $6.27 a bushel. Other commodities markets mostly rose, supported by hopes the economy has reached its bottom and a weakening of the US dollar.

Crude oil extended its rally, trading near $72 a barrel at a fresh seven- month high with investor appetite stirred by a larger- than-expected drop in US crude oil inventories. Nymex July West Texas Intermediate, the US benchmark, rose $1.40 in late afternoon trading to $71.41 a barrel. It had hit an intraday high of $71.79 a barrel, the highest level since November. ICE July Brent rose $1.14 to $70.76 a barrel.

Weekly crude inventories data from the US Department of Energy showed that the country’s crude stocks fell by 4.4m barrels last week to 361.6m barrels, a two-month low. The drop came after a sharp fall in oil imports into the US.

Oil prices have doubled in price since the market turmoil of late last year, with WTI gaining 60 per cent since January 1 as speculators have begun to gamble on a rebounding global economy leading to higher crude prices.

The US government data also showed gasoline inventories falling by 1.6m barrels, a figure exceeding forecasts of an 800,000 barrel increase, while distillate stocks, including diesel, dropped by 300,000 barrels against expectations of a 1.4m barrel increase.

Nymex July RBOB gasoline futures rose above $2 a gallon for the first time in eight months following the report on lower stocks.

The broad-based rally lifted copper to an eight-month high of $5,220 per tonne before it fell 0.2 per cent to $5181. Aluminium rose 1.7 per cent to $1,689 per tonne, a six-month high, but later followed copper lower, losing 1 per cent to $1,643. Zinc rose 1.4 per cent to $1,622.5 per tonne.

Gold slipped 0.2 per cent to $951.70 a troy ounce; silver rose 0.5 per cent $1518.5 per troy ounce.

Nymex July West Texas Intermediate, the US benchmark, rose $1.49 to $71.50 a barrel, its highest since early November. Earlier, it hit an intraday high of $71.60 a barrel. Meanwhile, ICE July Brent rose $1.24 to $70.86 a barrel.

The surge came after the American Petroleum Institute, the industry body, reported a larger-than-expected drop in US oil inventories of almost 6m barrels, against Wall Street’s forecast of 400,000 barrels. Although API statistics are less important than the official US Department of Energy figures, to be released later on Wednesday, the market still takes them as a sign of the direction of the official numbers.

Oil has doubled in price since the market turmoil of late last year, with WTI gaining 60 per cent since January 1, as speculators have begun to take bets on a rebounding global economy resulting in higher crude prices.

Production cuts by OPEC, the international oil cartel, of over 4 million barrels per day since September have also contributed to rising oil prices.

The negative correlation between the US dollar and dollar denominated commodities continued, with dollar weakness helping push several base metals to fresh monthly highs. The broad based commodities rally helped copper to an eight-month high of $5220 per tonne, a gain of 0.6 per cent.

Aluminium gained 1.7 per cent to $1689 per tonne – a fresh six month high that took the light metal’s gains to $120 over the past three sessions – and zinc rose 1.2 per cent to $1634.5 per tonne. Aluminium’s continued gains have left many observers puzzled due to the continued stockpiling of the metal by Shanghai traders and London Metals Exchange data showing record levels being held in the LME’s warehouses.

p/s photo: Aya Nakata