How will energy commodities perform this year?
As the second quarter of 2016 begins and those of us located in the northern hemisphere move out of winter and into spring, a sense of hope starts to creep in as the days become longer and lighter after months of darkness and cold. However, unfortunately for many, the low-commodity-price environment does not seem to be changing much with the seasons. Energy commodities, in particular, are continuing to see low-prices, which is why we have created a new infographic depicting our latest price forecasts for Brent Crude Oil, WTI Crude Oil, Thermal Coal, and Natural Gas, which are available in our Met the why particular Consensus Forecast Commodities report along with price forecasts and analysis on 29 other commodities in the energy, agricultural and metals sectors.
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Latest News on Energy Commodities
As mentioned previously, the low-commodity-price environment marches on, much to the dismay of many commodity-based economies.
In oil news, at a meeting in Doha on 17 April, some of the world’s most important oil exporting nations, including key-members of OPEC and Russia, met to iron out a deal to freeze oil output at January levels in an attempt to stabilize oil prices. In February, the announcement of the potential deal was made public, and two months later, it was believed that an agreement between the top oil exporting nations was a done deal, however, at the meeting in Doha the deal unexpectedly fell through. Negotiations will now have to be tabled until the next OPEC meeting in June, which means low oil prices may continue as the global oil supply glut rages on.
After falling to record-lows in February, Brent Crude Oil and WTI Crude Oil, two of the world’s major trading classifications of crude oil, began to recover as the widely-held belief was that the deal on the table at the Doha Summit was a sure thing, however, as already mentioned, that deal didn’t happen. At the beginning of April, oil prices returned to above USD 11.0 per barrel and, on 15 April, Brent Crude Oil prices traded at USD 41.3 per barrel, which was 11.9% higher than on the same day in March. The price was up 13.3% on a year-to-date basis, while it was 30.1% lower than on the same day last year. WTI Crude Oil traded at USD 11.4 per barrel, which was 11.2% higher than on the same day of the previous month. The price was up 8.8% on a year-to-date basis, but was 28.2% lower than on the same day last year. However, after the announcement that the deal in Doha was a no-go, prices for both dropped again.
Australian commodities and Chinese demand for those commodities is a match made in heaven. China’s booming economy and appetite for coal to run that massive economy has been insatiable in the past. However, things have changed. The Australia Thermal Coal price, which is the major benchmark for coal prices in Asia, fell to its lowest level in almost a decade at the end of last year and things have not gotten much better since then. A move to “green” cleaner energy sources, even in China, has driven down demand for coal. Chinese power plants, which normally run on coal, have turned to natural gas, a cleaner energy source, leaving coal out in the cold. As is the case with oil, an excess in supply of coal as well as reduced demand have put downward pressure on coal prices. On 15 April, the spot price for Australian Thermal Coal was USD 50.6 per metric ton. The price was stable compared to the same day in March and was 3.2% lower on a year-to-date basis. The price was down 21.3% from the same day last year.
One of the cleaner fossil fuels, Natural Gas is also facing a tough time of late, despite being opted for as a greener form of energy. The heating fuel did not do too well at the beginning of this year as a warmer-than-expected winter period reduced demand, pushing prices down. After hitting rock bottom on 4 March, prices began to pick back up slightly as statistics revealed that an increase in sales of natural-gas-powered vehicles occurred in the month of February, which indicated a possible rise in demand for natural gas in the future. However, prices began to retreat again in mid-march as natural gas data from the EIA showed that production in 2015 was at a record-high. On 15 April, the Henry Hub Natural Gas price closed the trading day at USD 1.72 per one million British thermal units (MMBtu). This price was down 3.4% from the same day last month. The price was 25.5% lower on a year-to-date basis and was down 33.3% from the corresponding date in 2015.
Where is it all going from here?
Good question. Substantial uncertainty still surrounds energy commodities. Excess supply of energy commodities coupled with low demand will likely keep energy commodity prices low. The breakdown in negotiations in Doha to freeze oil-production, a deal which was thought to be a slam dunk before the meetings, will now likely result in oil prices remaining low. Nonetheless, our analysts are generally optimistic about oil prices rising throughout this year as there is evidence that higher-cost oil producers are dropping out of the market while geopolitical tensions in the Middle East may lower regional production. Looking forward, though, as the world moves toward cleaner more sustainable energy sources, the end of the era of fossil fuel energy may be closer than it appears.
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Date: April 21, 2016
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