On Tuesday, sugar prices fell following a 12-year high, dragged down by the unexpected sharp decline in crude oil.
US sugar #11 futures for March delivery lowered by -1.47% to ¢27.54 per pound on November 07. Furthermore, industry watchers anticipate a further -0.07% decrease to ¢27.52 per pound in the upcoming market session.
The pressure came from the sudden liquidation of the sweet commodity after petroleum prices sank to a 3 1/2-month low. The US West Texas Intermediate (WTI) black gold decreased by -4.62% to $77.09 per barrel (bbl) when the markets closed yesterday.
A significant reduction in oil prices may prompt mills to crush sugarcane into sugar instead of processing it into ethanol. Such a move may lead the supply of the sweetener to increase while petrol inventories diminish.
The substantial drop surprised many as sugar had climbed to a dozen-year peak of ¢28.14 the day before. The commodity’s record-high price was driven by dwindling global supply.
According to the International Sugar Organization (ISO), worldwide sugar production will fall 1.20% year-over-year in the 2023-2024 harvest year. It also predicted that the world would suffer a 2.10 million metric ton (MMT) deficit of the sweetener next year.
In addition, analysts speculated that India may impose a total sugar export ban in the 2023-2024 season amid deteriorating production. The India Meteorological Department (IMD) said rainfall from June to September was 6.00% below average, the lowest in five years.
Falling Crude Oil Demand Pressures Sugar Prices
Despite continued voluntary production cuts by Saudi Arabia and Russia, global petroleum inventories are rising. The American Petroleum Institute (API) reported that US crude oil stocks rose by 12.00 million barrels last week.
The primary driver for the growing oil stockpile is deteriorating demand in the largest petroleum exporter, the West. As a result, some American sugarcane growers have started shifting away from ethanol production.
API expects black gold consumption in the US will decline by 300,000.00 barrels per day (bpd) this year. Mizuho Analyst Rober Yawger stressed that surging supply and slumping demand do not bode well for petrol producers and distributors.
Historically, whenever crude oil loses appeal as a trade item, sugar follows soon after. Therefore, if petroleum prices do not recover soon, the sweetener may continue trading at a lower price range.
