It is possible that the U.S. will actually do the unthinkable and defaults on its debt. While the markets have priced in some fear in the short term end of the yield curve and a rising VIX, the truth is that the market is taking this debt deadline with surprising calmness. Some of that of course may be the fact that the odds of Fed tapering are gone for the foreseeable future. So even with Fitch threatening the United Staes with a downgrade, the political theatrics will continue.
How come it seems like the talks with Iran over their nuclear program seem to be going better than the talks in Washington? While the White House is trying to play down expectations for the multi-country negotiations it seems that Iran is offering some substance. The AFP reports that Iran's top negotiator said Wednesday that a nuclear proposal presented to major powers in Geneva does allow for snap inspections of the Islamic republic's nuclear facilities, clarifying earlier remarks. "None of these issues exist in the first step, but they are part of our last step," Abbas Karachi was quoted as saying by the official news agency IRNA. He was replying to a question about whether an additional protocol to the nuclear Non-Proliferation Treaty, which allows unannounced inspections of Iran's nuclear sites, was included in the proposal. Araqchi had been cited by IRNA Tuesday as saying the additional protocol does not exist “in the offer.” Of course if a deal is cut with Iran the never ending risk premium that we have had in the oil market will have to be reevaluated. For well over a decade, fears were that Israel or the United States was just days or months away from attacking Iran’s nuclear ambitions. If there is even a slight belief that these talks could provide a framework that would ease the world’s concerns over Iran’s end-game then the premium would have to reduce substantially.
Of course some of us are going to feel a little lost without the Energy Information Administration supply report. But our Friend at the American Petroleum Institute will release their report as well as Genscape. Genscape will rise to the occasion and release their data to the General Public for free to fill the void from the knuckleheads in Washington. The API on the other hand will hoard their data for their own subscribers. It seems that the API is not feeling like helping the market out with a public release.
Oil did break $101 (NYMEX:CLX13), which means that we should trend lower with high volatility. Our trade levels have been navigating the swings. Natural gas double-topped at $4.00 as the trade says bring on the cold. With no data, it is going to be the technical and the weather that will dominate trade. Natural gas is overbought, but a break above $4.00 basis December might cause a rally that might surprise the already surprised bulls.
Another market of note was sugar. Sugar (NYBOT:SBH14) finally corrected after its very impressive run. Reuters news reported that the run up was because“ Louis Dreyfus Corp has bought nearly 1.9 million tons of raw and refined sugar in recent weeks in a buying spree worth about $750 million that has thrown further confusion into a market roiled by excess supplies. They said that one of the world's biggest sugar merchants was the sole buyer last week of the 1.49 million tonnes of raw sugar in the largest ICE Futures U.S. exchange delivery in at least 24 years. That came on the heels of the purchase of 313,150 tonnes of refined sugar through London's Liffe exchange just weeks earlier.”
Between those purchases and another deal to buy 60,000 tonnes of Thai sugar for delivery in July through September 2014, Louis Dreyfus has bought roughly $750 million worth of sweetener in the last month, based on futures prices and reported premiums. The move has stoked the hopes of some bulls that the market might have bottomed out after raw sugar futures hit three-year lows in July. That was down by more than half from a peak of over 36 cents a lb in early 2011. But other traders say the company has merely scooped up unwanted supplies at low prices, underscoring the sheer scale of Brazil's output and the world surplus. Louis Dreyfus scooped up sugar through the futures market as a surplus piled up and prices weakened over the past three years, a spokeswoman said in an email this week. The firm has been a buyer seven of the 17 times it has participated in a delivery against the New York raw sugar contract since July 2008, available ICE records show. "The deliveries do not bring any change to the global supply or demand of sugar," the Louis Dreyfus spokeswoman said. Even so, the size and pace of the buying have the market reeling as dealers calculate the impact on availability and prices. The massive ICE delivery alone represents more than half of last month's exports from Brazil, the world's No. 1 producer, according to Reuters calculations.
The most-active March contract has risen more than 4% since the October expiry and confusion over the huge delivery kept traders on the sidelines for much of the last two weeks. Bruno Lima, a senior risk management consultant at INTL FCStone in Brazil, said the October ICE delivery was one of the most "difficult" the market has ever had to handle. "On the one side, it means probably (the seller) didn't have anywhere else to place that sugar," he said. "On the other, it's not likely they (Louis Dreyfus) would bet that much on that amount of sugar if they did not have destinations for at least some of the sugar."Even so, the market outlook might be brightening, the bulls said.
With the bulk of the recent ICE delivery due from Brazil, traders have speculated that Louis Dreyfus is betting on potential supply tightness at the start of 2014, ahead of the world's No. 1 producer's next harvest. Rain forecasts have already stoked worries that the final leg of Brazil's harvest will be delayed even more after wet weather hampered crushing in September. In China especially, raw sugar's drop to three-year lows has stirred refiner demand.
Speculation has mounted that the first quarter of 2014 might see short-lived tightness ahead of Brazil's next harvest in April. Analysts and traders expect the world surplus to more than halve from last season to about 4 million tonnes in the 2013/14 crop year that began on Oct. 1.