Oil Continues to Push Up Energy Prices

Oil prices

June 12, 2018//-Oil prices continued to soar in May on the back of limited oil output, strong global growth and mounting geopolitical risks.

The rise in oil prices additionally buoyed oil derivatives such as gasoline and gasoil.

This is according to the June 2018 edition of the FocusEconomics Consensus Forecast for Commodities released by FocusEconomics, a leading provider of economic analysis and forecasts for 127 countries  in Africa, Asia, Europe and the Americas.

It added that energy prices rose 5.5% month-on-month in May (April: +6.3% month-on-month).

The global economy continues to expand at a healthy pace, boosting demand for oil and adding upward pressure on prices, the report stated.

“From the supply side, global oil output remained constrained in May by the successful implementation of the oil cap deal led by OPEC and Russia.  Moreover, the meltdown in oil production in Venezuela continued to add downward pressure on global oil output”.

Adding to solid fundamentals, oil prices received an extra boost in early May from the U.S. decision to withdraw from the Iran nuclear deal.

Along with increased political turmoil in the Middle East, which produces around one-third of the world’s total output, the economic sanctions against Iran could strain global oil supply at a time when oil markets are showing signs of undersupply, economists at FocusEconomics noted.

“By the end of the month, however, markets were no longer concerned about undersupply and were instead fearing oversupply. In late May, Russia and Saudi Arabia announced that they were ready to boost production to keep oil markets adequately supplied, while the U.S. shale industry continued to rapidly expand production”.

Thermal coal prices rose sharply in May as investors anticipated a hot summer in China, which would boost energy consumption. While coking coal prices declined on average in May, a marked increase was recorded in the second half of the month due to strong margins for steel and supply constraints in Australia.

Oil and oil-related products are seen leading the gains in energy prices this year due to strong fundamentals and persistent geopolitical threats in the Middle East.

On the flip side, stricter environmental regulations in China and a broader preference for cleaner energy globally will dampen demand for coal. Analysts surveyed by FocusEconomics expect energy commodity prices to rise 15.8% year-on-year in Q4 2018. Next year, our analysts expect energy prices to decline 1.5% in Q4 2019, mostly reflecting lower oil prices due to increased supply.

Global commodity prices also pick up

In May, global commodity prices increased for the second consecutive month, mostly reflecting a rise in oil prices and concerns about supply shortages for some agricultural products.

Base metal prices continued to recover in May from the plunge in March due to fears of a full-blown global trade war. Conversely, precious metal prices were affected by the strong U.S. economy, which has caused demand for safe-haven assets to decrease.

Early data for June suggests that the upward trend in commodity prices may have come to an end due to geopolitical factors and oversupply concerns in the oil market.

Commodity prices rose an aggregated 0.9% month-on-month in May, following April’s 2.0% increase. The panel of analysts surveyed this month by FocusEconomics expects commodity prices to increase 6.1% in Q4 2018 from the same period in 2017, mainly due to higher energy and agricultural prices.

Further down the road, analysts foresee that falling prices for energy, especially for oil, will lead global commodity prices to post smaller gains. The Consensus view among FocusEconomics panelists is that commodity prices will increase 1.6% in annual terms in Q4 2019.

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