Energy Commodities Price Outlook

Global economic uncertainties weigh on energy prices

Energy prices continued to fluctuate in recent weeks as the evolution of oil prices and its derivatives are shaped by an unpredictable global economic outlook. Energy prices fell 1.3% month-on-month in August, contrasting July’s 0.5% increase.

In the first half of August, oil prices were negatively affected by escalating trade tensions between China and the United States, which had the potential to derail global economic growth and thereby reduce demand for the black gold. Moreover, a handful of key oil producers ramped up output to compensate for falling production in countries such as Angola, Libya, Nigeria and Venezuela, as well as in anticipation of markedly lower production in Iran as increasingly punitive U.S. sanctions loom. Nevertheless, oil prices jumped in the second half of the month as Saudi Arabia reported a decline in output in July.  Furthermore, the U.S. campaign to reduce Iran’s oil shipments to “zero” has already started to bite; in August analysts claimed that Iran’s oil exports declined by almost one-third. The second round of U.S. economic sanctions against Iran, which will ban any company from buying Iranian oil or risk exclusion from the U.S. financial system, is scheduled to come into effect in November. In contrast, uranium prices soared in August on supply cutbacks by major producers, namely Canada’s Cameco and Kazakhstan’s state-owned Kazatomprom.

The almost uninterrupted rally in oil prices and oil-related products since July 2017 will translate into solid gains in energy prices this year. Analysts surveyed by FocusEconomics see energy commodity prices posting an astonishing 22.1% year-on-year gain in Q4 2018 (previous edition: +22.7% yoy). Next year, however, energy prices are expected to fall 3.5% in Q4 2019 as the ending of the OPEC-led oil cap deal will boost oil production, while efforts by various countries to reduce pollution will trim demand for coal.

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