Analysing the recent rise in oil prices: Grain market daily

• UK feed wheat futures (Nov-24) closed yesterday at £182.00/t, up £0.95/t from Monday’s close. The May-25 contract ended the session at £196.45/t, up £0.80/t over the same period.
• Global prices generally moved sideways yesterday. Chicago wheat futures fell yesterday mainly due to continued strong competition on the global export market from Russia. Also, winter wheat planted in US reached 25 % as at 22 September, just slightly ahead (1%) of the five-year average.
• Nov-24 Paris rapeseed futures closed at €479.50/t yesterday, up €4.25/t from Monday’s close. The May-25 contract gained €4.50/t over the same period, ending at €484.50/t.
• European rapeseed prices followed the wider oilseeds complex up yesterday. Much of the support in oilseeds markets came off the back of optimism that the Chinese government’s stimulus plans would boost the economy of the world’s top soyabean importer. The new stimulus plans also supported crude oil prices, see more on this below.

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While still much lower than earlier in the year, oil prices have climbed significantly in the past two weeks, with nearby Brent crude oil futures rising by 9% during this period. This rise is particularly notable considering the recent lacklustre demand that had created a bearish sentiment in oil markets.

In addition to the existing factors such as geopolitical conflicts in key-producing countries and supply chain disruptions, the recent economic policy in China and forecasts of a major hurricane around the Gulf of Mexico have added to support for oil prices this week.

On Monday, several US oil producers operating in the Gulf of Mexico paused production due to forecasts of a potential tropical storm expected to hit the gulf region and some parts of the US by tomorrow. Given that the US is the world’s biggest consumer and producer of crude oil, the momentary stop to production coupled with the expected drop in US crude inventories added support to oil markets.

On Tuesday, China’s central bank unveiled its largest stimulus package in four years. The economic intervention includes interest rate cuts and aims to address several economic challenges and support growth. Following this announcement, nearby Brent crude oil futures gained $1.27/bl yesterday to close at $75.17/bl supported by the expectation that the stimulus measures would boost aggregate expenditure in China, the world’s top crude importer. 

Meanwhile, concerns are mounting over potential supply disruptions in the Middle East due to escalating conflicts. An Israeli airstrike on Hezbollah in Lebanon on Tuesday stoked fears that the nearly year-long conflict between Israel and the Hamas in Gaza could escalate further, potentially destabilising the Middle East, a key oil-producing region.

Will the rally continue?

Challenges related to supply and demand dynamics persist, with key factors to watch including developments in the Middle East, and declining crude inventories in the US. Also, demand is expected to remain firm in the medium and long term according to recent forecasts by the Organisation of Petroleum Exporting countries (OPEC).

However so far this morning (as at 13.00), nearby Brent crude futures have shed £1.12/bl from yesterday’s close, as the initial impact from China’s stimulus announcement fades away.  

Where does that leave UK growers?

Historically, a sustained rise in crude oil prices results in higher costs for diesel and gasoline. However, prices remain relatively low compared to earlier in the year, and as it stands the rally is relatively short-term so far. However, if we do see support persist, we could see increased fuel costs. The rise in crude oil also could impact natural gas markets, which in turn may influence fertiliser prices.  For a more comprehensive view, check out our recent article on how rising natural gas prices affect fertilizer costs.

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