Crude Swings Amid Attacks on ISIS-Controlled Refineries

Global tensions and a strong U.S. dollar were driving big moves in commodities this week.

Cocoa rose to 3-and-a-half year high Wednesday on worsening concerns about the Ebola virus in West Africa, the top cocoa producing region in the world. If the disease were to spread to Ghana or the Ivory Coast, there could be an impact on the harvest or transportation of the crop.

Cocoa for delivery in December was recently trading at $3,373 a ton, up 34% over the past year, leading some analysts to believe the run-up may be nearing a top.

“Cocoa seems overdone by Ebola fears extending to the Ivory Coast,” said Lannie Cohen, president of Capitol Commodity Services. “It’s looking toppy here. I am looking for a place to sell it, although this rally could extend to $3,500.”

Earlier this week, the U.S. Centers for Disease Control and Prevention warned that the number of Ebola cases in Liberia and Sierra Leone could climb as high as 1.4 million by mid-January. The agency added that cases in Liberia are doubling every 15 to 20 days, while doubling every 30 to 40 days in Sierra Leone.

Continued tensions in the Middle East have led to a volatile oil market. The U.S. and Arab allies launched another wave of air attacks on Islamic State militants, this time targeting mobile oil refineries controlled by the militants inside Syria. West Texas Intermediate crude rose $1. 24 to $92.80 a barrel Wednesday, before trading lower Thursday.

“Despite headwinds from the US dollar pushing to its highest level in over 4 years, the crude complex is still managing to push on higher,” Matt Smith, commodity analyst at Schneider Electric, said in a note to clients this morning. “Some are attributing the rally to yesterday’s lower import-sponsored inventory drawdown in the US, but it would be more logical that geopolitical tension is lending support relating to the Middle East, as US and Arab forces launch attacks in Syria and Iraq, with 12 ISIS-controlled refineries among the targets.”

WTI is down roughly 12% over the past three months.

Another commodity making headlines is cotton, which is sitting near a five-year-low as analysts worry about oversupply. On top of that, prices came under further pressure this week on news that China is likely to cut back on its purchases. On Monday, a Chinese official said the country, which is also the world’s number one cotton consumer, is planning to slash their imports next year. Cotton futures have fallen 71% from their high on March 7, 2011.

Lastly, prices for dairy products are likely to continue to rise. Milk futures are sitting near record highs, as U.S. exports have climbed amid shrinking inventories of cheese and butter. Cheese stockpiles in July dropped 8% from a year earlier, and butter supplies fell 42%, the Department of Agriculture said last month. Milk futures are up 2.6% from their August close. Milk started 2014 below $18 per 100 pounds and is currently trading above $23.