Commodity Prices in February 2018
Global Commodity Prices Rose Sharply Early This Year
Prices continue to rise: across the board world commodity prices rose by 8.9 % during January 2018. Global economy is geared for growth — also on a broad basis — and the weaker dollar supported this trend. The weaker Grenback translated in a moderate rise of commodity prices in domestic currency by just 5.6 %. Especially prices for energy-related raw materials rose during January. The experts at Industriebank IKB explain the price development of raw materials in detail.
The continued positive development of the global economy will lead to an increase in crude oil demand by 1.53 mbd (million barrels per day) to 98.5 mbd. Of the increased demand, 1.15 mbd are covered by non-Opec countries. To balance the demand, Opec would have to produce a total of 39.6 mbd. 6.5 mbd of which will be accounted for by NGL grades. The remaining 33.1 mbd must be balanced out by conventional grades. However, only 32.4 mbd of these grades were produced in December 2017.
The high inventory levels are currently being reduced slightly. Together with geopolitical turbulences (Yemen, Qatar conflict, etc.), these conflicts are driving crude oil prices up. However, the more the prices pick up, the more profitable are fracking projects. This development should in turn trigger a countermovement very soon, which is likely to cause crude oil prices to fall again in the medium term.
By the end of the first quarter of 2018, experts at Industriebank IKB expect the crude oil price to oscillate around $ 65 per barrel of Brent. Despite a further decline in domestic natural gas production in Germany, the availability of natural gas remains at a very satisfying level. This is due to sharply increasing imports. In the wake of higher crude oil prices, however, the cross-border price for natural gas also has the potential to increase by another 5% during the next two months. The Industriebank, however, anticipates a decline in the second quarter of 2018, which is normal for the second quarter of the year.
The experts expect the exchange rate of the dollar to oscillate around1.25 by the end of the first quarter. After a further interest rate hike in the USA, the Euro exchange rate should come under pressure and weaken slightly. Overall, this partially compensates for the increase in raw material prices paid for in domestic currency.
This article was first published by Process.
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