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Commodity Monthly
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Divergent picture
Wed, Jun 4 2008, 08:10 GMT
by Arne Lohmann Rasmussen
Price developments have been very divergent across the commodity market in May. Base metals like zinc, nickel and lead have been under severe price pressure during May. Nickel prices are now down 44% y/y and the metal fell by more than 22% in May. Nickel prices are under pressure due to lower demand from the stainless steel sector. On the other hand, oil prices continued to surge in May and ended the month more than 10% higher. Crude oil prices have almost doubled in a year.
In the Energy section, we take a closer look at the outlook for oil prices. Basically, we now believe that prices will trade at the current level for the rest of 2008 and ease slightly in 2009 compared to todays price. Hence, we do not share the oil at USD 200 a barrel scenario. Rather we would like to point to the fact that we are now starting to see some effect on the demand side. We see Asian countries scaling back on gasoline subsidies and the US consumer is buying less gasoline now compared to 2007. It seems that people, including states, are now finally acting as if high oil prices are sustained for the foreseeable future. However, in our view it is still a very tight situation in the oil market. But not tight enough to push oil significantly higher.
The spike in the oil price during the spring has once again fuelled an old but nonetheless very relevant discussion if commodities are pulled higher by speculation and investor flows or by fundamentals. In the last issue of Commodity Monthly we wrote that in our view fundamentals are at play. However, one has to remember that fundamentals work in both directions. Nickel prices are under pressure due to waning demand and wheat, due to higher planting. Oil prices are high due to a tight market balance.
If we take a look at the IMM positions in crude at NYMEX it is hard to find any arguments for a speculative bubble in oil. The number of speculative net-long positions is at a very modest level of 24,500 and halved in the week when the oil price touched USD 135 a barrel. The same applies to open interest in Brent crude. The number is more or less at the same level as two years ago. In other words, it seems that prices have changed due to new information among the participants in the market, not due to speculative flows. But it does not rule out a lower oil price in the future. If fundamentals change or the perception of fundamentals changes to the negative the price will drop and vice versa.
Published on Wed, Jun 4 2008, 08:14 GMT
Archive
- Commodity supply under pressure
Published On Wed, Nov 5 2008, 14:03 GMT - Commodity forecast update
Published On Fri, Oct 17 2008, 08:07 GMT - Financial meltdown bad for commodities
Published On Tue, Sep 30 2008, 16:49 GMT - It's the economy, stupid!
Published On Fri, Sep 5 2008, 15:32 GMT - Bear market to continue or just a correction?
Published On Tue, Aug 5 2008, 14:07 GMT
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