Obtain the data you need to make the most informed decisions by accessing our extensive portfolio of information, analytics, and expertise. Sign in to the product or service center of your choice.
Our Materials Price Index (MPI) increased 0.9% last week, its
fifth gain in six weeks. The rise was relatively narrow, however,
with only four subcomponents rising, two were flat, while four
fell. The rally in oil markets continues to drive commodity prices
higher; oil increased 2.5% last week. Fuel costs also help to push
up freight rates, which recorded a strong 13.6% increase.
Geopolitical events are threatening oil production in both
Venezuela and Iran, pushing up prices. In Venezuela, President
Maduro won re-election in a disputed vote, raising the possibility
the US will impose stricter sanctions. Further sanctions will only
exacerbate collapsing oil production in Venezuela, where we expect
that crude production will fall by 320,000 b/d in the second half
of 2018. In Iran, fallout from President Trump's withdrawal from
the JCPOA is roiling the country's oil sector; last week, French
company Total SA announced plans to abandon investments there. In
contrast to these negative supply-side developments, oil production
is surging in the United States - we expect combined output growth
for 2018 and 2019 to equal 2.4 MMb/d. The only check to an even
better US response are logistical bottlenecks in the Permian basin.
We believe these hindrances to even better US production will be
overcome by the fourth quarter this year; until then, oil markets
will continue to tighten, providing price support to the commodity
complex.
Despite the upward revision to our oil price outlook, we still
see headwinds to a sustained commodity price rally. The pace of the
global expansion appears to be peaking, with measures of economic
"surprises" turning negative as momentum has weakened, especially
in Europe. Part of this change can be linked to financial markets,
where a slow tightening has helped to increase volatility. An end
to ultra-loose monetary conditions potentially exposes many
emerging market corporations who have resorted to external dollar
borrowing, or countries with financial imbalances, to higher
interest rates and currency moves. While this risk to the broader
global economy should not be overstated, it should also be noted
that for most raw materials, the source of physical consumption
growth remains these emerging market economies. Changing conditions
in financial markets may therefore blunt what has been a good
two-year run for commodities.