Chicago: Crude oil, gold and grain prices will keep rising as demand for commodities plays catch up with a robust global economy, analysts said on Tuesday (31 July).
“Global demand for oil is expected to rise by 50% in the next 25 years, in China the demand is at record highs and will continue to rise,” Phil Flynn, energy analyst for Alaron Trading Corporation, told an annual Commodities Outlook form.
He said “a strong stock market coupled with a weak dollar suggests that demand in the US will grow steadily for the remainder of the year.”
The forum, held at the Chicago Board of Trade, was hosted by Dow Jones Indexes-AIG Financial Products Corp.
Flynn said crude oil prices, which have soared almost $8 per barrel from $70 in early July basis New York crude futures to nearly $78, would peak at $85 by end of 2007.
“I think crude was undervalued based on the rest of the world markets,” he said, adding that continued growth of world economies should add about $10 per barrel per year to the price of crude oil and that the market should reach roughly $100 per barrel at the end of 2009.
Flynn also said gasoline prices were currently undervalued and would rise to match crude oil prices by the end of 2007.
Tom Pawlicki, precious metals and energy analyst for MF Global said gold would remain strong and peak at “$700 by year-end and potentially $730 by year-end or early next year.”
Seasonal buying of gold including holiday purchases in India, the world’s largest consumer of jewelry, will keep the gold market strong, Pawlicki said. Also, “commercial buying has returned and weakness in the dollar is a positive for gold.”
New York COMEX December gold futures were trading at roughly $678 per ounce.
Grain markets, which have been on the boil for over a year led by a surge to 10-year highs in corn and 11-year high in wheat during the first half of 2007, also will remain strong.
“We have moved into a different weather regime. Weather has been stable for several years, but now global weather is much more extreme,” said Jack Scoville, analyst for The Price Futures Group.
Harsh weather in Europe and in the US and tight global supplies have been boosting wheat prices. The corn soared to 10-year highs early this year amid the strong demand for corn from the ethanol industry.
Scoville said a weak dollar, strong global economy and continued demand for corn from the energy sector would support grain and soybean markets.
“I’m not sure if the wheat market can move to record highs but it certainly has that potential,” Scoville said.
Chicago Board of Trade wheat futures soared to an 11-year high of $6.64 last week, nearly a dollar per bushel below the record high of $7.50 per bushel set in March 1996.
“Strong wheat demand will continue and the corn market that has been strong because of demand for ethanol will remain strong,” Scoville said. “Demand for ethanol and government subsidies to produce ethanol won’t go away.”
Scoville said corn, for the short-term, would trade at or just above the $3.00 per bushel level and would return to the $3.75-$4.00 per bushel level by the end of the year.
CBOT corn futures for September delivery were trading around $3.25 per bushel on Tuesday (31 July).
Soybean markets will stay strong as US farmers switch more of their land to corn and away from soy production. And the weak US dollar amid a soaring Brazilian real also will keep boosting soybean prices, he said.
“Soybean prices will have to go back to at least the $9.00 per bushel level to assure soybean production increases in Brazil,” he said. “I look for another very strong year for commodities,” Scoville said.