Barry Bulls Up Oil Market
As Tropical Storm Barry bears down on Louisiana, fears are rising that the storm would exacerbate heavy flooding in the region, causing the Mississippi River to back up and potentially overflow New Orleans’ protective levees.
As residents flee the storm, so too are oil workers in the Gulf of Mexico. Over half of the oil production in the Gulf of Mexico has been shuttered, as has 45% of natural gas production. Fears of production loss helped both markets rally moderately, pushing August crude oil futures to a seven-week high near $61 per barrel, while natural gas rose to near $2.50 per million British thermal units, a six-week high.
A decade ago, a similar storm would have caused a massive spike in oil and natural gas prices, as much of the U.S. production used to be focused in the Gulf of Mexico. However, the expansion of hydraulic fracking has drastically increased inland oil and gas production, making the U.S. less dependent on offshore drilling. Additionally, U.S. stockpiles of both fuels are relatively robust, protecting markets from big shocks.
Grain Markets Ignore USDA
Still reeling from a shocking U.S. Department of Agriculture report two weeks ago, farmers anxiously awaited the USDA’s newest outlook on this year’s corn, wheat, and soybean crops on Thursday morning.
After this spring’s devastating flooding and late planting, most market watchers expect that this year’s corn and soybean acreage and yields will be far lower than previously projected.
However, the USDA left acreage figures at the elevated levels from last report and left projected crop yields essentially unchanged, creating a larger supply outlook than most people expected.
Despite this, markets took off, ignoring the U.S. government’s data, with corn and soybeans returning to their high levels from two weeks ago. Current hot and dry weather is putting stress on the growing crops, adding to concerns about smaller harvests this fall.
Meanwhile, the newest report showed bullish figures for the wheat markets, despite ongoing expectation for a bumper crop. Wheat production from global competitors like Canada, Russia, and the European Union is expected to drop, boosting demand for U.S. exports. Additionally, the relatively high price for corn compared to wheat will encourage livestock producers to feed their animals high-protein wheat instead of corn given the minor price disparity.
As of midday Friday, November soybeans traded for $9.23 per bushel, December corn traded for $4.56, and December Kansas City wheat was worth $4.84.
Opinions are solely the writers’. Walt & Alex Breitinger are commodity futures brokers with Paragon Investments in Silver Lake, KS. They can be reached at (800) 411-3888 or www.paragoninvestments.com. This is not a solicitation of any order to buy or sell any market.