Commodities: Global
OPEC Oil Output Increased 60,000 barrels per day (bpd) to average just under 27 million bpd (mbpd) during May, according to a Bloomberg survey. Iraqi production increased slightly to 4.2 mbpd, failing to either adhere to its
agreed limit or making extra “compensation” cuts to make up for earlier overproduction. At their latest meeting, OPEC+ agreed to maintain their 2.2 mbpd output cuts into next year but allowed the UAE to gradually add 0.3 mbpd between January and September in 2025. The Saudis also held their voluntary additional cut of 1.0 mbpd through the same date. Russia pledged to hold their crude oil and fuel export cuts by a combined 0.5 mbpd, and continued damage from Ukrainian attacks on refineries “helped” in that regard. Total OPEC+ spare capacity production was about 6.65 mbpd and can largely be brought online within 30 days and sustained for at least 90 days. It sat just above the five-year average. Demand forecasts from OPEC’s analysts diverged from various private sources, predicting growth of 2.25 mbpd this year, while others see less than half that amount. Meanwhile, output growth from the US, Canada, Guyana and Brazil are all underway as well as from newer exporters such as Niger and Senegal. The handy graph right outlines the cuts by country and conditions. Fighting in Gaza continued with Israel freeing four hostages that were held captive in by armed “civilians,” including three by a journalist who worked for Al-Jazeera (and other papers and the Hamas-run Gaza Labor Ministry).
US March Oil Production held at 13.1 mbpd despite operating oil rigs falling from 506 as of April 26th to 496 as of May 31st. Per AAA, US average regular unleaded gasoline prices slipped back to $3.54 (-12¢) as of the end of the month.
Energy Information Administration (EIA) said that US oil output from top shale-producing regions will rise in June to its highest in six months, reaching 9.9 mbpd. Air travel consumption has been increasing as the number of passengers passing through airport checkpoints reached an all-time high (see right). In a blatantly political move, the Biden administration said it would release the 1 million
barrels of gasoline (about 3 hours of US daily gasoline consumption) from a Northeast reserve established after Superstorm Sandy in a bid to lower prices at the pump this summer. The sale, from storage sites in New Jersey and Maine, will be allocated in increments of 100,000 barrels. I guess the bet is that there will never be another hurricane or other major disruption event. Finally, retirement dates for the country’s ageing fleet of coal-fired power plants are being pushed back as concerns over grid reliability and expectations of soaring electricity demand forced operators to keep capacity online. The International Energy Agency estimated the AI application ChatGPT uses nearly 10 times as much electricity as Google Search (per the FT).
Official World Gold Reserves reached 1,170 million fine troy ounces, the most since the 1970s. Over the last 13 years, world central banks’ gold holdings are up roughly 21%. Global gold reserves are now even higher than just before President Nixon broke the US Dollar’s link to gold in 1971. In 2022 and 2023 alone, world central banks bought 1081 and 1037 tonnes of gold, respectively. Per an official at the IMF, purchases were concentrated in the “China bloc” countries (China and Russia were cited but not others), which have increased gold holdings from about 1% of foreign exchange reserves to about 7% over the last fifteen years. In comparison, “US bloc” countries have been pretty steady at around 20% of currency reserves. However, in a surprise move, China’s central bank didn’t purchase any gold in May, ending a buying spree that ran for 18 months and helped push the metal to record prices.
US Department of Agriculture crop condition report for the beginning of June showed 72% of U.S. soybeans as being in good or excellent health, with corn at 75% – both strong starts. The wheat crop in Kansas, the top US wheat producing state, was unexpectedly getting bigger, with the state’s harvest on track to reach a three-year high of 290 million bushels, beating the USDA’s latest forecast by +8.4%. The upcoming US soybean harvest has been expected to approach record levels, but exporters had sold practically none of it as of mid-May, a typical time when new-crop sales start to roll in. As of May 9, U.S. soybean export sales for the 2024-25 marketing year starting Sept. 1 had reached just 890,387 metric tons, a 19-year low for the date and almost two-thirds lower than a year ago. China was the likely culprit in delaying purchases as their soybean imports in April jumped +18% from a year earlier, as buyers snapped up cheap and plentiful Brazilian beans instead. China’s soybean imports from Brazil rose +11.7% in April from a year earlier. Meanwhile, Argentina is on track to start long-awaited corn shipments to China from July.
And in other news…
For the first time since the financial crisis, investors in top-rated bonds backed by commercial real estate debt were hit with losses. Owners of the AAA portion of a $308 million note backed by the mortgage on the 1740 Broadway building in midtown Manhattan got less than three-quarters of their original investment back, making it the first such loss of the post-GFC era. All five groups of the lower ranking tranches were wiped out.
Per-capita retail availability of head lettuce has reached a new low of 9.6 pounds in 2022. “That’s 2.2 pounds and 19%
below the figure for romaine and leaf lettuce,” The culprit? “It is cabbage [not iceberg lettuce] in those pre-packaged salad kits that always sell out at the grocery store.” Not even the University of Minnesota’s Lettuce Club — and their annual iceberg-eating competition — can reverse this trend.
Finally, the investment industry lost a titan with the death of Dr. Jim Simons, the mathematician-investor who founded Renaissance Technologies. From 1988 through 2023, the Medallion fund generated an astounding average annual return of almost 40%, even after hefty fees. In 1964, after teaching at Harvard University, Simons moved to Princeton, New Jersey, to take a highly classified job at the Institute for Defense Analyses that supported the National Security Agency in cracking codes used by the Soviet Union. Later, Simons co-authored ground-breaking papers and received recognition by the American Mathematical Society while chairing the math department at University of New York at Stony Brook. Of his own transition from science to finance, Simons once observed, “One can predict the course of a comet more easily than one can predict the course of Citigroup’s stock. The attractiveness, of course, is that you can make more money successfully predicting a stock than you can a comet.” He was 86 years old.
All the best in your investing!
David Burkart, CFA
Coloma Capital Futures®, LLC
www.colomacapllc.com
Special contributor to aiSource