By Chris Flood
Published: March 3 2010 12:36 | Last updated: March 3 2010 12:36
Oil prices made modest gains on Wednesday ahead of the latest US weekly inventories data while raw sugar prices extended their correction for a third session.
Base metals moved higher but copper dipped after gains earlier this week prompted by concerns about potential supply disruptions following the earthquake that affected Chile at the weekend.
Crude oil traded just shy of the $80 a barrel mark, with Nymex April West Texas Intermediate up 17 cents to $79.85 while ICE April Brent added 10 cents to $78.28.
US crude stocks were forecast to have increased by 1.4m barrels last week, according to a poll of analysts by Reuters, with imports of crude oil expected to have risen above the key 9m barrels a day mark.
Stocks of oil held in tankers offshore have been falling as it has become less economic to store crude. The spread between the current WTI benchmark, the April contract, and the May contract has tightened substantially as the futures curve looked set to flip from contango (spot price below forward prices) to backwardation (spot price above forward prices).
Petrol inventories were expected to have risen 600,000 barrels last week.
Nymex March RBOB unleaded gasoline traded 2.9 cents, or 0.1 per cent, higher at $2.1995 a gallon.
Distillate stocks, including heating oil, were forecast to have fallen 900,000 barrels following heavy snow in the US north-east.
Nymex March heating oil traded 0.8 cents, or 0.4 per cent, higher at $2.0645 a gallon.
Sugar prices were mixed after sharp falls in the previous two sessions.
ICE May raw sugar fell 1.2 per cent to 22.38 cents a pound, taking losses over the past three sessions to 7.2 per cent.
White sugar prices, however, managed a partial rebound with the Liffe May white sugar up 1.6 per cent to $628.8 a tonne.
Reports of a recovery in India’s sugar production in the 2009/10 season, which started in October, helped pull sugar prices sharply lower at the start of this week.
However, comments from a government minister suggested India would still need to import substantial volumes of sugar from the international market this year to meet its domestic consumption requirements.
Sharad Pawar, India’s farm minister, said India’s demand for sugar in 2009/10 was forecast at 23m tonnes against output of 16m tonnes.
However, global sugar stocks have fallen to a record low and some analysts remain concerned that a second poor monsoon season in India could result in extreme pressure on prices.
“You only need another failure in the Indian monsoon for sugar prices to go to stratospheric levels, said Max Foster, an economist at the Australian Bureau of Agricultural and Resource Economics. “If you have an average monsoon, you will probably see prices easing a little bit more than they are already as some of that risk premium comes off.”
Ian Glasson, chief executive of the sugar division of CSR, Australia’s largest producer, said the sugar market remained on a “knife’s-edge”.
“It only takes a significant event in Brazil and we can see very, very dramatic price increases again,” he said.
High sugar prices should encourage Brazilian producers to make an early start to processing this year.
Sugar cane production in the southern-central region of Brazil, the largest exporter, should rise at least 10 per cent, according to Unica, the Brazilian sugar growers’ association.
“We will probably have a very short inter-crop season this year, said Eduardo Leao de Sousa, executive director at Unica, who predicted that Brazilian mills would begin processing the new crop within weeks rather than waiting until April, the usual starting date for harvesting.
Unica predicted an improvement in sugar yields, which were affected last year by bad weather with heavy rain having a particular impact on the final phases of the harvest.
Sugar yields should rise to at least 140kg per ton of cane from about 130kg, according to Unica.
Among base metals, copper dipped 0.1 to $7,490 a tonne due to uncertainty about supplies from Chile, the world’s largest producer. Mining facilities were left undamaged by the earthquake that devastated Chile at the weekend but widespread damage to roads, bridges and ports could disrupt supplies.
Gold traded at $1,138 a troy ounce after ending Tuesday’ session in New York at $1,134.25.
