April 2, 2007

 

Crude oil strength reignites speculative interest in CBOT soyoil

 

 

Rising crude oil prices have rekindled bullish enthusiasm for soyoil, due to its relationship with biodiesel, pushing Chicago Board of Trade soyoil futures to new contract highs and record open interest levels.

 

The recent rise in soyoil prices and the increased speculative interest in that market are still tied to biodiesel optimism, said Anne Frick, senior oilseed analyst with Prudential Financial in New York.

 

The most active CBOT May soyoil futures rallied to a new intraday and contract high of 33.00 cents per pound Thursday (Mar29), the highest level for a nearby contract on continuation charts since May 2004.

 

CBOT reported open interest in the soyoil futures reached an all-time high of 316,834 lots Wednesday, surpassing the previous record of 310,424 lots set Tuesday. Open interest climbed from 290,232 lots on March 21 to Wednesday's record high. Meanwhile, volume in soyoil options reached a record Wednesday as well at 12,654 lots.

 

The nearby May soyoil futures price has appreciated 10.5 percent in value since its March 6 settlement of 29.85 cents per pound, to Thursday's settlement of 32.97 cents.

 

The resurrected crude oil market has reignited index fund buying in soyoil, said John Kleist, senior analyst with Top Third Ag Marketing in Chicago. Soyoil's link to biodiesel is shaping up to be the next darling of the index class, following in the footsteps of corn in its relationship to ethanol, he added.

 

The strength of petroleum oil prices has reignited confidence in the idea that usage of soyoil for biodiesel will increase, said Frick. Soyoil is the primary feedstock for US biodiesel production.

 

Tensions in the Middle East, particularly involving Iran, have fuelled crude oil rallies recently and soyoil's recent gains have coincided with those price moves, analysts said.

 

Soyoil prices had previously traded through a period of consolidation, with traders starting to question if the market had gotten carried away with biodiesel enthusiasm, said Frick. A slowdown in biodiesel usage in Germany because of changes in tax laws allowed the market to pause and take stock of the situation, she added.

 

In addition, rapeseed prices had fallen sharply amid a massive crop in Europe, with consumption of biodiesel in Germany dropping by 30 percent, said Kleist. Rapeseed is a competing oilseed to soybeans.

 

However, with the recent rally in crude oil futures, index funds have returned to the soyoil futures market, attracting traditional commodity funds in the process, analysts said.

 

The Commodity Futures Trading Commission reported index funds hold net long positions totaling 74,030 combined CBOT soyoil futures and options contracts as of March 20, up from 73,524 the prior week. Traditional large speculative traders were net long 63,027 contracts compared with net longs of 59,736 in the previous week.