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Energy and commodity demand is rising or falling, and prices will rise or fall. Brilliant!


Economists have the best job in the world.  They are constantly predicting the long term future based on the recent past.  The result is that the contradictions in what they predict leaves the common person to wonder.

Global Economic Prospects 2009: Commodities at the Crossroads | World Bank

Commodity markets have seen spectacular swings over the past 24 months as enormous tensions first built up and were then released. The extended and sharp rise in commodity prices prompted concerns that the world was transitioning into a new phase of commodity scarcity—a concern that the recent dramatic drop in commodity prices has only partially alleviated.

Long-term supply and demand prospects for commodities suggest that while commodity prices are likely to be higher than they were during the 1990s and early 2000s (when they were depressed by excess supply), the recent peaks that have been observed are unlikely to be the new norms. Over the long run, demand for commodities is not expected to outstrip supply. Even though per capita incomes in developing countries are expected to continue rising rapidly, population growth is slowing and with it global GDP growth. As a result, the pace at which commodity demand expands should also ease. Assuming that efficiency with which commodities are both employed and produced continues to improve as it has done over the past few decades, supply should keep pace with demand.

In fairness the focus of this report is developing economies, but some of the quotes here defy anything we have read recently.

  • demand for commodities is not expected to outstrip supply
  • population growth is slowing and with it global GDP growth
  • the pace at which commodity demand expands should also ease
  • supply should keep pace with demand

So we get headlines such as this in the FT today “Global demand for oil to plummet“.

Yet …

The longer run is less clear. Even after the correction, the longer-running trend in energy prices is menacingly upwards.  30th July, 2008

One sane voice was Joe Lieberman “My own conclusion is that index speculators are responsible for a big part of the commodity price increases,” says Mr Lieberman, who chairs the Senate committee on homeland security and governmental affairs, among the committees to hold hearings.” 7th July, 2008

and the classic from the International Energy Agency “The energy watchdog said rapid growth in China and India meant that without a radical change in policies, both countries would double their energy consumption by 2030, putting pressure on scarce resources such as oil and raising emissions of greenhouse gases.” 7th Nov, 2007

Relevance to Bankwatch:

There we go.  Energy and commodity demand is rising or falling, and prices will rise or fall.  Brilliant!

On a more serious note, the problems associated with the politicisation of intelligence (CIA, SIS etc) applies equally to ecomomics.  Economics in particular ought to be matters of fact based on supply and demand resulting from demogrpahic, population and income predictions, all of which are relatively easy to predict.

Economists  .. please chime in and help us out here.

Written by Colin Henderson

December 9, 2008 at 21:48

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