But don’t bother looking for a long-term trend
ORECASTING COMMODITY prices is a mug’s game. The Economist has been much mocked for our suggestion in 1999 that, in a world “drowning in oil”, a barrel of the stuff might cost as little as $5. That was just before the oil price shot up from $10 to a peak of nearly $150 over the next decade. This month, however, the world is again awash and the oil price has plunged to unheard-of depths. On April 20th a barrel of West Texas Intermediate oil for delivery in May had a negative price-tag, meaning sellers had to pay buyers. On April 27th prices for June also slumped by more than a quarter, though remained positive, at just over $12 a barrel. A row between Russia and Saudi Arabia, and lower demand for oil because of the covid-19 lockdowns, have left markets flooded. Analysts are asking again, as in 1999, if the world will have to get used to permanently low prices not just for oil but for other commodities too.
Economists are in two broad camps over the long-term direction of commodity prices. In the late 1940s two development economists, Raúl Prebisch and Sir Hans Singer, hypothesised that the price of raw materials would fall against manufactured goods over time. They argued this would happen because, as global incomes rose, demand would rise faster for complex goods than for basic commodities such as oil or food.
As people get richer, for example, they buy cars with fancier gadgets, rather than ones that use more iron ore.
www.economist.com
ORECASTING COMMODITY prices is a mug’s game. The Economist has been much mocked for our suggestion in 1999 that, in a world “drowning in oil”, a barrel of the stuff might cost as little as $5. That was just before the oil price shot up from $10 to a peak of nearly $150 over the next decade. This month, however, the world is again awash and the oil price has plunged to unheard-of depths. On April 20th a barrel of West Texas Intermediate oil for delivery in May had a negative price-tag, meaning sellers had to pay buyers. On April 27th prices for June also slumped by more than a quarter, though remained positive, at just over $12 a barrel. A row between Russia and Saudi Arabia, and lower demand for oil because of the covid-19 lockdowns, have left markets flooded. Analysts are asking again, as in 1999, if the world will have to get used to permanently low prices not just for oil but for other commodities too.
Economists are in two broad camps over the long-term direction of commodity prices. In the late 1940s two development economists, Raúl Prebisch and Sir Hans Singer, hypothesised that the price of raw materials would fall against manufactured goods over time. They argued this would happen because, as global incomes rose, demand would rise faster for complex goods than for basic commodities such as oil or food.
As people get richer, for example, they buy cars with fancier gadgets, rather than ones that use more iron ore.
Oil and commodity prices are where they were 160 years ago
But don’t bother looking for a long-term trend
