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Breitinger

Walt and Alex Breitinger

Here's a look at futures prices on commodities that impact Southern Illinois and the rest of the Midwest.

Oil flares up on Saudi attack

Last weekend, Saudi Arabian oil facilities were attacked by missiles and drones, leading to extensive damage. The facilities control the flow of over half of Saudi Arabia’s oil and represent approximately 5% of global production.

The attacks have been widely attributed to Iran, leading to initial concerns about a much wider military conflict, especially after President Trump stated that the U.S. military was “locked and loaded.”

Further attacks on Saudi Arabia or retaliatory strikes against Iran could severely restrict oil production in either country or even limit exports from the Middle East at large, as Iran controls the waterways that much of the world’s oil tankers pass through.

On Sunday night, when global oil traders got their first chance to react, the global benchmark November Brent crude oil rallied more than $10, pushing as high as $71 per barrel.

Since then, tensions have calmed significantly; there have been no further attacks, and it appears that neither the United States nor Saudi Arabia are preparing military counterstrikes. Furthermore, the Saudis are expecting to get facilities working again sooner than feared.

As a result, oil prices have faded significantly, giving up half of their initial rally, with November Brent trading for $65 per barrel on Friday.

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Fed lowers rates again

The U.S. Federal Reserve Board announced another interest rate cut this week for the second month in a row. The Fed typically cuts interest rates to support the economy in times of trouble but appears to be doing so now to preempt an economic slowdown.

The Fed also announced new measures to inject more money into the banking system, a move that would help keep interest rates lower.

Stock markets reacted favorably to the stimulus, nearing all-time highs this week, while gold and silver held steady near $1500 and $18 per ounce, respectively, a sign that traders aren’t fearing inflation yet.

Cocoa heats up

Cocoa prices rallied nearly 15% during the last month, reaching $2,475 per metric ton on Friday.

Good demand has helped make cocoa prices frothy, and a strong European stock market also contributed to the boost. Midweek, reports that African growing regions continue to suffer from problems with swollen shoot disease stimulated new speculation.

Most cocoa beans are produced from trees in Africa and shipped to Europe and the U.S. where they are used to make chocolate. The price of cocoa and chocolate is especially sensitive to economic strength and is often seen as a barometer of expendable income.

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Walt and Alex Breitinger are commodity futures brokers in Valparaiso, Indiana, and the opinions here are solely the writers'. They 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.

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