Technical & Fundamental Oil Reports Specialists

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The great commodity collapse

Published Monday, December 14th, 2015

The year is ending on an uncomfortable note. The smell of fear is back in the air. The commodity price fall is no longer a simple matter of a wealth transfer with consumers gaining at the expense of producers. The OPEC meeting has removed any last hopes of a reprieve for oil and it has added another layer of downside sentiment to commodities in general. The dam has collapsed and prices are in free fall with devastating consequences for investment and jobs. A whole swathe of defaults threatens and oil backed sovereign wealth funds, usually a source of cash looking for a home, are instead having to cash in to shore up government budgets. The global economy was devastated in 2008 by the great financial crash. Next year is gearing up to be dominated by the fallout from the great commodity crash.

Granted commodity prices have been falling for months but there has been an air of disbelief and hope of a rebound which has kept investors and lenders in the game. There has even been an air of satisfaction in seeing greedy and environmentally dirty commodity companies under the cosh in much the same way as investment bankers in 2008. Reality is dawning — the commodity sector is too big to fail. It has been the biggest direct and indirect source of global investment and job creation for decades. This is a merry go-round that cannot stop without causing huge damage. Anglo American’s capitulation reducing its working mines from 55 to 20 and cutting 85,000 jobs may with hindsight turn out to be a turning point but don’t bet on it.

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Posted by David Hufton