The economies across the world do not show any sign of strong economic growth. The world economic stagnation has reached levels that push down the demand for raw materials which in turn is reflected by the severe drop in the commodity prices to the levels that are lower than the 2008-2009 recession. As everyone is focused upon the crude oil's price that went down by more than 50% since the summer of 2014, a large section of the basic commodities have been under the same price pressure.
This severe drop in the price of the commodities is due to the insufficient demand for raw materials coupled with the excess in the production capacity which was created by investments in the anticipation of strong economic recovery and followed by a steady economic growth across the world.
But the turbulence witnessed in the world such as the slowing of the economic growth in China or the weakness of the Russian economy and Greece's economic crisis has resulted in the decline of the commodity markets. The sharp drop in oil which started last summer has affected adversely many energy-producing countries such as OPEC members and Canada and saw their economic growth reduced as a whole.
This combination of slow growth in demand and excessive capacity expansion resulted in the sharp drop of commodity prices. China's gradual slowing of its economy represents only one part of the problem. The weak conditions of the world economy has also affected the global shipping of the goods. The amount of raw materials being shipped has dropped significantly thus signalling a negative outlook as a key indicator for consumption and manufacturing trends.
The combined effect of slow global demand and expanding supplies resulted in a terrible period for the commodities. The sudden shrinking of oil prices has changed severely the economic outlook in energy-producing countries as well as around the world. But the rise of the U.S. dollar against most currencies should have some deflationary effect. The devaluation of some national currencies could boast their exports thus reviving their ailing economy but in turn could affect adversely the U.S. prices.
The slump in the oil price will force the non-Arab OPEC members who feel uncomfortable with the present situation whereas the Arab bloc still enjoys good profit margins due to their low cost production, to call for extraordinary meetings . But these meetings will be the signs of deepening unrest about this oil crisis as some OPEC members requested and will request again the cut in the oil production output on a bid to reverse the current trend in the oil price.
One should expect to see a balance to be reached by the summer where the price of oil should reach the 80-90 levels at best and it should remain there for while, say until the spring of 2016 before picking up steam. This will occur following the interest rate decision of the Federal Reserve, expected on June 2015; currently, its postponing constitutes a psychological barrier. The same holds for the other commodities as the economies will start to liquidate their excess capacities with the restoration of the economic growth across the world by the same time next year. The cyclical nature of the commodities will reverse its bearish course after a long consolidation period and should start an bullish course with the next favourable economic circumstances. Also, it should be added that the rise in the value of the U.S. dollar has exerted a downward pressure upon the commodities and as the EUR/USD parity has bounced back slightly from 1.11, it should be expected to go to 1.25 figure and this will have a beneficial effect upon the commodities in the short run.
