Thursday, August 8, 2013

Roubini : The supply of Oil and Energy is going to rise & demand is slowing down because China’s growth is slowing down

It is pretty safe to say that the commodity supercycle is dead? From your perspective, what was the reason or reasons for its end?

Nouriel Roubini : Well, I don’t think there is one reason. I would at least separate between four categories of commodities; each one of them has a different dimension of demand and supply. One is oil and energy; the second would be precious metals. The third one will be industrial and base metals, and the fourth will be soft commodities and agriculture.
There are several factors that imply the corrections. One is that China now has had a very sharp slowdown. Even other, well-advanced economies are growing weakly now. There is also the weakening of growth in many other emerging markets that is going to bear down on global growth and on various commodity prices.
Secondly, in the oil and energy sector, the shale gas and oil revolution implies a significant increase in supply. There’s lots of shale gas and oil, but of course also discoveries offshore and in oil fields from Brazil to Colombia to the oil that’s been discovered in Sub-Saharan Africa, from Sudan all the way down to Mozambique. The supply of oil and energy is going to rise. And demand is slowing down because China’s growth is slowing down, and you also have a variety of measures taken by many countries to save on energy and become more energy efficient.
The other thing is that when commodity prices were high, investments were made to increase supply, whether it was in energy or base metals or agriculture or you name it. All the new supply is coming to the market. So now the supply curve has become more elastic, and therefore the increase in supply for any given demand curve is pushing prices down lower. This is a bit of a delayed cycle, and it’s a combination of many different stories—the China story, the energy-saving story, the shale gas and oil revolution, the delayed increase in supply coming from previous high prices and so on. It’s not just one story. - in indexuniverse
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