Global Commodities Prices Drop
One of the stories of the week has been the remarkable decline in commodity prices. The dramatic slide in oil and gas prices has had a significant effect on companies in the energy sector and today the trend continued.
Thursday, September 11, 2014 - 00:00
Natural gas futures have plunged 3.6% today, not helped by news from the Energy Department that the amount of gas in underground storage for the US was 2801 billion cubic feet (bcf) as of 5 September, meaning stocks increased by a net amount of 92 bcf last week, following a 79 bcf rise in the week prior. Gas stocks remain substantially below the five-year average for this time of year, however.
Worries that slowing growth in Europe and Japan (and possibly China) could result in global demand failing to keep up with plentiful supplies has pushed the price of agricultural and energy commodities to multi-year lows. The weather this spring and summer has been benign for farmers and the US Department of Agriculture has forecast record harvests this year for crops such as corn and soybeans. Soybean futures have slid more than 1.8% today, while corn is close to 2% down on the day.
US crude oil futures have risen today, gaining 0.84% to $92.46 a barrel, but despite this recovery the price remains close to the year’s low, earlier hitting $90.43 a barrel, the lowest price since May 2013. The International Energy Agency today trimmed its 2014 and 2015 forecasts for global demand, the third downward revision in its projections in a row. The Paris-based agency described the recent slowdown in demand growth as ‘nothing short of remarkable’, adding ‘While demand growth is still expected to gain momentum, the expected pace of recovery is now looking somewhat more subdued’. The IEA now predicts an increase in oil demand of 0.9 million barrels a day in 2014 and 1.2 million barrels a day in 2015, down from 1.0 million and 1.3 million respectively.
Share prices on Wall Street were generally in the red in afternoon trading, though the major stock index benchmarks were off their lows. By early afternoon in New York, the Dow Jones Industrial Average was down by 0.19% or 33 points at 17,035, while the S&P 500 index was off by 0.26% at 1990.5.
Caution has been kindled in the stock market by the threat of increased US military action in the Middle East. President Obama announced yesterday that the US would ‘degrade and ultimately destroy’ ISIL, also known as the Islamic State, with the President promising the US would lead a ‘broad coalition to roll back this terrorist threat,’ utlilizing a strategy that entails a systematic campaign of air strikes and sending additional servicemen to Iraq to support Iraqi forces with training and surveillance. Ten Arab states today agreed to help the US stop the flow of funds and foreign fighters to ISIL after talks with Secretary of State John Kerry.
Key economic data are released tomorrow morning in the form of retail sales for August (the consensus estimate is for a 0.6% rise) and the preliminary reading of the University of Michigan’s index of consumer sentiment for September.
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