Traverse City Record-Eagle

July 13, 2013

Futures File: Crude prices continue to rise

BY ALEX BREITINGER
Special to the Record-Eagle

---- — The U.S. crude oil prices rocketed to a 16-month high on Thursday, reaching as high as $107.45 per barrel. The price exploded after a US government report showed a sharp drop in U.S. oil supplies in its weekly inventory report. The supply drawdown came as US refiners took advantage of large U.S. supplies trapped in Midwest storage facilities.

Rising U.S. and Canadian oil production have produced a glut in the Midwest, but, until recently, there was little infrastructure to transport the crude. Through the use of pipelines and trains, the supply imbalance is being resolved, allowing coastal refineries to use U.S. oil in place of more expensive imported foreign crude.

Relatively abundant supplies domestically had kept US prices low, but the free flow of crude is now bringing our oil prices in line with the global markets, where prices are much higher due to supply constraints in the Middle East and Africa.

Some analysts believe the U.S. oil prices may weaken in the future as the U.S. continues to reduce its imports of foreign crude, making our markets less susceptible to foreign conflicts. As of midday Friday, U.S. crude oil futures were worth $105.60, near the international benchmark “Brent” crude price of $108.70.

USDA report sinks soy

A USDA report released on Thursday morning showed rising projections for U.S. soybean production this year. In the report, the USDA raised estimates of planted acreage and total soybean production by 30 million bushels, a moderate increase. This caused a sell-off in the soybeans, which dropped as much as 25 cents per bushel (-1.8 percent) in the wake of the report. As of midday Friday, soybeans for delivery in November were worth $12.66 per bushel.

Bernanke batters dollar

Currency markets reacted violently this week to commentary from Federal Reserve Chairman Ben Bernanke. Traders were betting that the United States would soon raise interest rates, but Bernanke said Wednesday that they would not raise rates “for some time.” This adjustment in the outlook caused a sell-off in the U.S. dollar in favor of foreign currencies. If U.S. interest rates stay low, it makes other currencies more appealing than the U.S. dollar. During the week, the U.S. dollar lost 1.7 percent in value against the euro, with one euro worth $1.305 on Friday.

Opinions are solely the writer’s. Walt Breitinger is a commodity futures broker in Valparaiso, Ind. He can be reached at (800) 411-3888 or www.indianafutures.com. This is not a solicitation of any order to buy or sell any market.