Commodity prices rise amid economic turbulence

1 06 2011

Article can be found here

Key points:

– Lately, oil price is extremely volatile due to disappointing economic data from the US and eurozone, uncertainty about a potential debt-restructure in Greece and weaker oil demand from the US, China and Japan.

-Gasoline demand is expected however to pick up in the coming weeks as Americans take to the road for their summer holidays.

-On the New York Mercantile Exchange, West Texas Intermediate (WTI) or light sweet crude for July climbed to $100.35 a barrel from $97.41.

-Gold and Silver remain to be the safest investments during problematic economic times. As a result the precious metals have increased in price: on the London Bullion Market, gold jumped to $1,533 an ounce from $1,491 the previous week; Silver rose to $37.69 an ounce from $34.80.

-Chinese manufacturing eased to a 10-month low point in May, HSBC bank data showed, fuelling fears of a slowdown in the world’s number two economy.

-Prices picked up sharply on as US banks Goldman Sachs and Morgan Stanley raised their 2012 forecasts for Brent to around $130 a barrel.

-Economists said the data showed consumer spending was weaker than previously believed, with the high cost of food and fuel likely the reason.

Discussion questions:

1) Why do Goldman Sachs and Morgan Stanley predict that oil will be so expensive again? Is it a new rapid recovery or just an uncertainty and consequences of Arabic World instability?

2) What are other factors that can affect commodity prices this year? Make a brief forecast, according to the current conditions.

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4 responses

1 06 2011
bgray8

2. Simply enough, I believe that the prices of commodity’s will be most affected due to supply and demand changes. One scenario would include a decrease in the amount of the commodity available, in which case the price would rise. Another scenario would be an increase in consumer interest, or possibly technology, therefore fluctuating the prices of these commodities. Overall, the situation that the economy is in, is what affects the commodity price.

1 06 2011
Kiruban

2. Generally the prices are set based on the supply and demand for the item. When there’s allot of consumers for a particular item, the price would go up. It also depends on the scarcity of the item. When the middle east, an large producer for oil, had its uprising, oil became scarce and the price have increased dramatically. In another scenario, weather can affect the price of commodities. Harsh weather conditions can affect the production and supply for certain food commodities and may increase the price.

2 06 2011
Carolyne Wang

1. It is unlikely that there is a rapid recovery in the world economy, because Greek debt and the earthquake in Japan is pulling the economies of those countries down. Goldman Sachs and Morgan Stanley’s prediction of high gas prices is likely fueled by uncertainty of the outcomes in oil producing countries such as Libya.
2. Right now, speculation has driven gas prices higher as investors predict higher prices for gas. Another reason for the changes in gas prices this year is political instability, for example in oil producing countries like Libya, where political conflict threatens to reduce the supply of oil. I predict that oil prices will likely increase slowly until the conflict in Libya subsides, after which prices will decrease as the supply of oil is less likely to decrease.

2 06 2011
Heshani Makalande

2. We have seen a dramatic rise of gas prices over the last few years. Currently the main issue behind this as we hear on news is Libya (a country that produces oil in a large scale) has completely shut down its oil production due to war conditions. Likewise, many other countries in the middle east who have oil commodities delay their supply due to various economic and other conditions in their countries. The rise in this significant increase in oil prices would continue for awhile because oil is an inelastic good and people have unlimited wants and oil being a scarce good. Thus, considering the current conditions i predict that oil prices would continue to increase as it is now until countries find more oil commodities or open up the oil chain in Libya and increase the oil supply.

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