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Crude oil and canola part company

WINNIPEG — The symbiotic relationship that crude oil and canola used to enjoy seems to have hit a snag.

Chart structures have proven that crude prices have pushed and pulled canola up and down in recent years.

However, since the start of 2018, the gains enjoyed by crude oil have failed to lift canola.

On Jan. 10, the cost of a barrel of oil on the New York Mercantile Exchange was US$61.82. Now, that same barrel is closer to $71.

Canola, on the other hand, has fallen from the C$505 per tonne mark down to the $485 per tonne mark, as of the market close June 13.

According to Mike Jubinville of ProFarmer Canada (which is owned by The Western Producer’s parent company, Glacier Farm-Media), the link that existed between the two has been disrupted by the global trade disruptions emanating from the White House, and to a lesser extent China.

He says the relationship between the two commodities should eventually return.

“We’ll swing back to traditional relationships between commodities but there are periods of time of disconnect and right now is one of them,” he said.

Another market-watcher also agreed that crude’s influence on canola seems to have waned.

“I don’t really look at crude as a canola indicator very much anymore,” said Errol Anderson, president of ProMarket Communications. He added crude oil has turned into a manipulated market from global players and tends to be focused on issues stemming from the Middle East.

To understand the influence crude oil initially had on canola, though, one first has to look at energy.

Canola, like many other vegetable oils, has a stake in the biodiesel market. So when crude oil is moving one way or another, biodiesel will get caught up in its wake. That bias is eventually transferred down to things like European rapeseed futures, Malaysian palm oil and eventually canola.

Crude is also considered a leader in the market because it is the highest traded commodity by volume and by valuation.

Thirdly, when crude oil is on the move, it always attracts the interest of the speculative community.

“If crude is making a move higher and you have a lot of spec money that wants to enter commodities, and they spread it around, you get some residual effect on the ag sector,” Jubinville explained.

He added that commercials will also get more investors interested in buying up commodities like canola if crude makes a jump higher.

However, for now, the escalating trade battle between the United States and China and the unpredictability of U.S. President Donald Trump continues to cancel out most other influences.

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Copyright © 2016. All market data is provided by Barchart Market Data Solutions. Futures: at least 10 minute delayed except as noted. Information is provided 'as is' and solely for informational purposes, not for trading purposes or advice. To see all exchange delays and terms of use, please see disclaimer.
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