Energy Sector Continues to Come Under Pressure


As the dollar rally continues amid abundant oil supplies, the energy sector is taking another hit.

West Texas Intermediate (NYSE:WTI) crude fell to a new two-year low of $85.60 Thursday on the back of a report out of the U.S. Energy Information Administration noting a stronger build in inventories than many were expecting.

“Yesterday's report showed current inventories much higher than expected, reinforcing the downtrend,” Lannie Cohen, President of Capitol Commodities Services said. “It is getting hit by not only the supply side, but the demand side as well as the IMF reduced their global growth outlook,” he added.

WTI is down more than 8% this year and nearly 6% over just the past month.

Precious metals were also under pressure, but turned higher after the latest release of the FOMC minutes Wednesday. The minutes showed several Fed officials said the U.S. economic expansion “might be slower than they expected if foreign economic growth came in weaker than anticipated.”

The minutes reference the Federal Open Market Committee meeting that took place September 16-17. Because the minutes came in more dovish than expected, traders looked to assets like gold, which become more attractive when interest rates are expected to remain low. Gold prices rose to a two-week high  $1233 an ounce after trading below $1200 earlier in the week.

Coffee prices, however, have been quite the opposite story, as a rapid price increase continues. Poor weather conditions in Brazil, which accounts for about 45% of the Arabica crop, have been driving prices higher all year.

“The crop has been under stress all year long in some shape or form,” Christopher Narayanan, Head of Agricultural Commodities Research at Societe Generale said. “Lately, we’ve had another round of dry weather and forecasts for the next 10 days continue to be dry."

Coffee prices are up nearly 80% since the start of 2014.

Retail giant Starbucks (NYSE:SBUX) raised prices of select coffee beverages earlier this year, along with other retailers like J.M. Smucker’s (NYSE:SJM), which includes Folgers. Analysts believe customers could see another round of price hikes, but some caution that the coffee giant in particular has locked in a lot of their coffee input costs for 2015, meaning a price hike is by no means guaranteed.

“Starbucks is at the high end in terms of the percentage of coffee prices they have locked in for 2015,” Narayanan said. “They are at about 60% (of prices locked in)."

Starbucks did not respond to a request for comment.