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Supercycle over but commodities not forgotten

Since the start of the year, movements in crude and gold prices have caught the attention of investors.

The price of energy and gold has been moving higher for various reasons; from the cold weather, where a surge of demand pushed up prices, to the improvement of global economic growth this year.

WTI prices were trending lower at the end of last year on increasing stockpiles; this jump has been attributed to the cold weather disrupting production at a time when demand is rising. The EIA lowered forecasts for US oil production this year and next, after the ‘severe weather this winter has caused temporary slowdowns in completing new wells’.

The US oil production of fracking has given a boost to the economy. This revolution in the US oil production, which has changed the US from being oil dependent (importing 60% of oil) to almost independent, has prompted some to seek a removal of restriction on exports of oil. 

The call for change is also in Brent, where Platts expect crude from countries such as Africa and Russia to be added onto the benchmark in the future. Brent has been trading in a tight range since last December and this change in stability of the prices has prompted observers to note that the volatility which was previously embedded in Brent has dissipated. 

Brent was trading between wide ranges of US$88 a barrel to US$128 a barrel in the past couple of years has now stabilised a tight range of US$105-110. The change in trend has most expecting it to stay this way in the short term. There is concern that supply disruptions in Nigeria and Libya will push prices higher as global demand of oil increases.

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