U.S. corn futures dropped to the lowest in levels in six weeks yesterday as forecasts for favorable climatic conditions across the U.S. Midwest enhanced optimism among grain traders for bumper crops this year thereby facilitating grain glut in an already saturated corn market.
Chicago Board of Trade (CBOT) July corn lost about 7 cents to $3.17-1/4 a bushel in the steepest drop since early May.
In addition, economic worries over the rising novel, COVID-19 infections in the western world, and parts of Africa weakened demand for this vital crop.
Quick fact; Corn futures are designed as standardized, contracts traded on an exchange in which the buyer of the contract agrees to take delivery, from the seller of the contract, at a predetermined price on a future delivery date agreed upon.
Most parts of the western world use corn as an energy substrate for livestock feed. In Nigeria and most parts of the world, corn is also is consumed by humans either by cooking, roasting, its industrial uses include producing industrial alcohol, fuel ethanol, sweeteners, starch, and beverage.
This year America remains the largest producer of corn while China and Brazil come in second and third respectively.
“Weather models got wetter overnight,” said Mike Zuzolo, president of Global Commodity Analytics. “The ethanol correction from the energies is adding to some liquidation pressure as well.”
Grain traders also placed their bets ahead of next week’s U.S. Department of Agriculture (USDA) quarterly grain stocks and the U.S. planted acres reports.
Adding strains on the price of corn futures the International Grains Council yesterday raised its forecast for global corn and wheat production.
Nigerian crude grades yet to rally because of U.S Shale
Bonny light sold for $43.33, far below the price Nigeria sold its crude months ago.
Crude oil prices for lighter Nigerian grades have not experienced the rally its category is presently having, despite significant draws on stockpiles in Europe, as cheaper substitutes like U.S Shale continue to be more attractive to importers, according to a report released by Reuters.
Bonny light, according to oilprice.com, sold for $43.33, far below the price Nigeria sold its crude months ago, at a discounted rate to attract buyers. However, consistent Indian buying continued to buoy Nigerian differentials, especially for some medium grades.
Quick fact: Brent crude is the leading global benchmark for Atlantic basin crude oils. The international benchmark is used to set the price of crude oil of about of two-thirds of the world’s traded crude oil, including Nigeria’s crude.
Africa’s largest producer of crude oil and gas, Nigeria, gets most of its oil from the Niger Delta area, and its relatively classified under two specification based on its lightness and gravity, the heavier grade with a specification of, 20–25 gravity. The lighter grade with a specification of 36 gravity and both Nigerian grade types are low in sulfur and paraffinic.
Examples of Nigerian grades include Bonny light, Brass River and Qua Iboe.
Recall that three months ago the price of Bonny Light, one of Nigeria’s crude grades, had dropped to about $12–$13 a barrel because the major market for Nigerian Crude, had experienced economic depression triggered by the COVID-19 pandemic.
Also, it went so bad that even with lower oil prices, long-haul buyers from Asia did not want Nigerian oil cargoes because of shipping costs to pay and no real need for the oil barrels since demand has plunged.
Crude oil prices fall over lingering concerns on world’s largest consumer
Both International benchmarks for crude gained more than 2% yesterday.
Crude oil prices plummeted on Friday morning as the resurgence of COVID-19 picked up globally, especially in the world’s largest economy and consumer of crude oil (United States), dampened the optimism for strong demand in energy goods.
Brent crude futures lost 0.70% to trade at $42.84 a barrel at 4.30 am Nigerian local time, and the West Texas Intermediate also dropped 0.8%, to trade at $40.31 a barrel.
Quick fact: Both International benchmarks for crude oil gained more than 2% yesterday, triggered by positive macros coming from the U.S Job report and falling U.S. crude inventories. For the week, Brent crude is up 4.3% and WTI is up 5.6%.
Stephen Innes, Chief Global Market Strategist at AxiCorp, in a note to Nairametrics, explained in detail the lingering concerns about the world’s largest consumer of crude oil. He said:
“The demand concerns continue to linger amid a rise in gasoline stockpiles as the number of confirmed coronavirus cases in the US climbed to an all-time high of more than 50,000 on Thursday.
“And as significantly, the infection curve rose in 40 out of 50 states in a reversal that has mostly spared only the Northeast. Indeed, faltering re-opening of US States as Covid-19 cases rise remains the primary thorn in the oil bulls’ side.
“But worrisome for oil prices are the densely populated southern US states that have been ravaged by the virus and are among the US’s most weighty consumers of gasoline.
“With the latest state government health advisory imploring Sun Belt citizens to restrict movements coupled with the re-imposition of localised lockdowns, there is a detectible level of uncertainty in the oil market heading into what is traditionally one of the busiest driving weekend of the year, the July 4th celebration weekend.”
However, some oil traders and investors remain optimistic that the price of crude will maintain its bullish momentum in the midterm, as long as certain parameters are kept in place.
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“The market has become increasingly confident that easing restrictions on travel and business would boost demand for crude oil, but the pandemic’s progress threatens to derail this recovery,” ANZ Research said in a note.
“The recovery in gasoline demand will plateau until the U.S. economy improves,” it concluded.
OPEC production output now at lowest level in nearly 30 years
Production cuts from OPEC countries and other allies have helped to revive the price of Brent Crude.
The production output of the Organisation of Petroleum Exporting Countries (OPEC) member-countries has recorded its lowest level in nearly 30 years, due to production cuts after demand was heavily impacted by the COVID-19 pandemic. The last time oil production was cut to 22 million barrels a day was during the Gulf War in 1991.
Last month, OPEC cut production to 22.69 million barrels per day, in an effort to strengthen global prices for the commodity which was struggling with weak demand during a global lockdown occasioned by the pandemic.
OPEC leader, Saudi Arabia, has been compliant in its production cuts through the month of June. Back home, Nigeria has promised to do its parts in implementing total compliance with the cuts.
Production cuts from OPEC countries and other allies such as Russia (OPEC+) have helped to revive the price of Brent Crude to over $40 since May, compared to record lows in the month of April.
While the Gulf nations have implemented further cuts, Nigeria, Angola and Iraq are still lagging in full compliance, meeting only 77%, 83%, and 70% (respectively) of their quotas. Saudi Arabia reduced production by 1.13 million barrels to 7.53 million a day in June.
Other members like Venezuela pumped only 340,000 barrels a day in June, even though they are exempted from cuts as the country is dealing with a series of issues from US sanctions to a severe economic recession.
Meanwhile, Russia hit its target quota for the second month in a row as countries outside the OPEC also cut production due to falling demand impacted by the COVID-19 pandemic.