Commodities Head for Record Losing Run on Oil to Dollar

By Sharon Cho and Morgane Lapeyre

Photographer: Jamie Schwaberow/Bloomberg

Energy prices collapsed in 2014 as a jump in U.S. drilling sparked a surge in output... Read More

Commodities headed for the biggest annual loss since the global financial crisis in 2008, retreating for a record fourth year, as a global glut spurred a rout in oil prices and a stronger dollar cut the allure of raw materials.
The Bloomberg Commodity Index (BCOM), which tracks 22 products from crude to copper, fell 0.3 percent to 105.7837 points at 8:43 a.m. in London, after dropping to the lowest level since March 2009 earlier today. It’s lost 16 percent this year, with crude, gasoline and heating oil the biggest decliners. A fourth year of losses would be the longest since at least 1991.
Energy prices retreated in 2014 as a jump in U.S. drilling sparked a surge in output and price war with OPEC, which chose to maintain supplies to try to retain market share. The dollar climbed to the highest level in more than five years as a U.S. recovery spurred speculation
that the Federal Reserve will start to raise borrowing costs next year. Commodities are set for a volatile year in 2015, with crude oil poised to extend its slump, according to Australia and New Zealand Banking Group Ltd.
“What we’re seeing is that supplies from North America have really outpaced worldwide demand growth and as a result, we have a supply glut,” Andy Lipow, president of Lipow Oil Associates LLC in Houston, said by phone. “And that of course has put pressure on prices over the last several months. And as a result, it’s dragging down commodities indexes as well.”

Brent Slumps

Brent for February settlement traded at $57.01 a barrel on the London-based ICE Futures Europe exchange, with rices 49 percent lower this year. West Texas Intermediate dropped 1.1 percent to $53.55 a barrel on the New York Mercantile Exchange. Gasoline sank 49 percent this year.
A slowdown in China also hurt demand for raw materials as policy makers grappled with a property slowdown, and data today showed a factory gauge at a seven-month low in December. The world’s biggest user of metals is headed for its slowest full-year economic expansion since 1990. China’s central bank cut interest rates last month for the first time since 2012.
Arabica coffee was the biggest gainer this year as the worst drought in decades eroded supplies in Brazil, the largest producer and exporter. Nickel rose the most among metals, gaining 8.7 percent to $15,114 a metric ton on the London Metal Exchange after Indonesia halted ore exports. Both commodities rose in the early months of 2014, before dropping this quarter.

Oil Outlook

While most commodities looked oversold as the New Year neared, weak near-term fundamentals were unlikely to bring much confidence, ANZ analysts including Mark Pervan said in a report dated Dec. 22. An oversupplied market was likely to keep crude oil prices under pressure, they wrote.
Deutsche Bank AG this month cut its 2015 forecast for Brent to $72.50, down from an October prediction for an average of $88.75. Goldman Sachs Group Inc. expects Brent to average $80 to $85 a barrel in 2015, while WTI may trade at $70 to $75.
The Bloomberg Dollar Spot Index, which tracks the U.S. currency against major peers, advanced 11 percent in 2014 amid speculation the Fed may raise interest rates in the third quarter as the world’s biggest economy improves.