Crude Oil

The Organisation of Petroleum Exporting Countries (OPEC) increased crude oil production by 300,000 barrels per day to 28.39 million barrels per day in May 2009. According to John Kingston, global director at Platts, a leading provider of energy information globally, “with the recent increases in crude oil prices, the drumbeat that we’re on our way back to $100-per-barrel-oil has been growing louder”. However, the surge in output shows that OPEC has a lot of productive capacity that it can bring on the market relatively quickly, and that should certainly prove a hurdle to any move back to three-digit oil prices, feels Kingston. Crude prices have been rising steadily since mid-February and have touched $72 a barrel. The International Energy Agency (IEA) has increased its estimate for oil demand by 120,000 barrels per day to 83.3 million barrels per day in May 2009. Another factor that has been helping crude prices is the increase in China’s industrial output. The Chinese industrial output grew 8.9% in May 2009 compared with the same period last year. Being one of the largest consumers of crude, a higher demand from that countru is likely to keep prices of the commodity on the higher side.

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Sugar, Oil & Gas and Crude Steel

• A few days after the government allowed trading in wheat futures again, the Forward Markets Commission (FMC) has banned trading in sugar futures till December 31 fearing that it could create inflationary pressures on the commodity. The FMC blow comes even before a new government has come to power and taken charge. In fact, after the ban on wheat was lifted, the market was expecting that the ban on tur and urad too would be lifted. 

• According to the International Energy Agency, an energy advisor to 28 industrialized countries, more than 50 major oil and gas projects have been deferred or cancelled because of the global economic crisis since October. The IEA estimated that spending on oil and gas exploration and production will total around $375 billion this year, down about $100 billion, or 21%, from a year ago. 
• World crude steel production for the 66 countries reporting to the World Steel Association was 89 million metric tons (mmt) in April. This is 23.6% lower than in April 2008. Production for the first four months of 2009 was 354 mmt, a 22.7% decrease over the same period of 2008.
 

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Iron Ore

China has rejected the 33% cut in iron ore prices agreed to by Japanese steelmakers like Nippon Steel and one of the biggest ore supplier Rio Tinto; however, the world’s fourth largest mill, Posco of Korea is prepared to accept the deal. For over 40 years, the iron ore market has maintained an annual pricing system, which the Chinese mills are not willing to go with anymore. China is insisting on a cut of as much as 40% that would reverse last year’s surge after six years of gains. The market is now waiting to see whether China -- whose iron ore imports have more than quadrupled since 2002, when prices rose by almost the same rate - is forced to buy from the spot market or fall in line with the annual benchmark system. Meanwhile, the demand-supply situation in the iron ore market may exert greater pressure on price. The chief executive of BHP said that “in the medium term we don’t expect a sharp rebound in overall economic activity; in fact, we believe that economic recovery will be both slow and protracted.”

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