Commodities: Energy Commodities Price Outlook
February 14, 2018
Strong fundamentals continue driving prices up in January, but some warning signs have started to emerge
The global oil market is rapidly rebalancing, and analysts consider that the global oil glut has finally disappeared. Strong compliance with the oil-cap deal by OPEC and non-OPEC participants; collapsing production in some countries, chiefly Venezuela; and maintenance efforts are limiting global supply. Moreover, global growth remains strong and will likely remain on a solid footing throughout this year as emerging-market economies start compensating for slowing growth in advanced economies. That said, the latest data suggests that U.S. shale oil producers are quickly ramping up production, threatening to jeopardize the efforts of the oil-cap deal participants. Moreover, U.S. stock markets slumped in early February amid concerns about rising interest rates in the country and a firmer U.S. dollar, negatively reverberating across most energy price markets.
While the increase in prices for both Brent and WTI crude oils dominated headlines last month, prices increased the most for gasoline and natural gas in January. Higher oil prices have been behind the rise in gasoline prices. Moreover, gasoline prices are benefiting from the surge in U.S. gasoline exports, particularly to Latin America, and a buoyant labor market in the U.S. Prices for natural gas climbed in recent weeks in the wake of a cold winter in Europe and North America, which pushed up demand for heating. Energy prices rose 6.9% month-on-month in January (December: +3.3% mom).
The upward trend in energy prices is expected to continue going forward, albeit at a much weaker pace, as oil supply will remain elevated this year due to rising production in the United States. Moreover, the oil-cut deal expires at the end of December 2018. If not extended, it will certainty imply more oil into the markets by participants in 2019. Tighter environmental regulation in China and a broader preference for cleaner energy will put a dent in demand for thermal coal, while coking coal prices will decline because of slower demand for steel. Analysts surveyed by FocusEconomics expect energy commodities prices to rise 2.2% year-on-year in Q4 2018. They see an annual expansion of 1.2% in Q4 2019.
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