Baku, Azerbaijan, Nov. 27
By Leman Zeynalova – Trend:
The price of oil and industrial metals will end 2019 around current low levels, according to the UK-based Capital Economics consulting company.
“We expect oil and industrial metals prices to stay low over the next year. Historically, the prices of oil and other commodities have been positively correlated. This is not surprising as demand for oil and metals (and to a more limited extent some agriculturals) typically move in tandem with the economic cycle. Also, oil is a key input to mining and agriculture. So, if oil prices are falling, production costs are also usually in decline,” said a report from the consulting company.
Admittedly, in the short term, the relationship does not always hold, not least because the supply picture varies, according to the report.
“For example, in 2011-14 fears about disruption to global oil supply, associated with the Arab Spring, boosted oil prices, while metals prices fell on concerns over slower growth in Chinese demand. But the relationship was restored in 2014 and remained strong, at least with metals, until oil prices surged this year.”
The company analysts remind that indeed, from April until early October, concerns about future supply meant that the oil price ignored mounting US protectionism and softer economic activity in China, which weighed on metals prices.
“The oil price diverged from the prices of even the most energy-intensive commodities, such as aluminium. However, we forecast that the divergence would not last as their historically-close relationship would be restored once the worst fears about oil supply were not realized,” said the report.
“Looking ahead, oil prices may rally in the short term if, as we expect, there are supply cuts, but we think the price of oil and industrial metals will end 2019 around current low levels. Crucial to this is weaker demand for industrial commodities as growth slows in the US and Chinese economies.”
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