World oil glut to continue weighing down all commodities

Saudi Arabia has thrown down the gauntlet, challenging world oil producers to see who can suffer the most pain.

On Dec. 4, the Saudis, who dominate the Organization of Petroleum Exporting Countries, said the organization wouldn’t back down.

Members will continue to pump surplus oil, driving down prices to the lowest level since early 2009 to force competitors from the field.

This is of interest to Canadian farmers because low oil prices weigh down all commodity prices, including grain and oilseeds.

The Saudis made a show of reasonableness, offering to rein in production if all exporters, OPEC and non-OPEC, agreed to make similar cuts, but Russia, suffering from western sanctions over Ukraine and desperate for revenue, and Iran, freshly freed from sanctions over its nuclear program, both rejected the proposal.

As well, U.S. shale oil producers are not cutting as fast as expected.

Now the questions are how low will prices fall and who will have to say uncle and slash oil production.

We could be in for several months below $40 a barrel. Many believe it will be 2017 before oil sees much of an increase.

In the past, lower fuel costs spurred economic growth that eventually revived commodity demand, but this time the positive effect seems muted by general economic malaise and poor consumer confidence.

As for grains, there is always potential for a major crop failure to raise prices, but otherwise, the industry will struggle from its own oversupply problems and the wet blanket of the depressed energy-commodity sector.

About the author

Comments

explore

Stories from our other publications