Many primary commodity prices have fallen during the recession, but have recovered somewhat as the recession has bottomed out and hopes of a recovery have grown. So what will happen to commodity prices over the next few months and beyond, and what will determine the size of the price changes? The following linked articles look at these questions.
Commodity prices set to rise further, Roubini says Telegraph (3/8/09)
Have oil prices peaked for 2009? Hemscott (25/8/09)
What’s Ahead for Commodities BusinessWeek (23/8/09)
Gas Prices to Triple by Winter? (video) CNBC (25/8/09)
For commodity price data see:
Commodity Price Index Monthly Price Index Mundi
Questions
- What will determine the amount by which commodity prices rise (a) over the next twelve months; (b) the next three years?
- What will determine the size of any change in the Australian dollar from rising commodity prices?
- How does the holding of stocks affect (a) the size of commodity price changes; (b) the volatility of commodity price changes?
- Under what circumstances is speculation in commodity markets likely to (a) stabilise and (b) destabilise commodity prices?
- Explain why gas prices are likely to rise less than oil prices.
Changes in the price of oil have effects throughout the economy. And it’s not just on the obvious things, such as petrol prices, energy bills and rail, bus and air fares. Most companies are significantly affected by the price of oil, as oil is a key input into their production, whether for transporting their inputs or the goods they produce, or as plastics or other petrochemicals. This is why the price of oil receives so much attention: we’re all affected by it. You will have seen the price of petrol changing dramatically over the past year or so and this is largely due to changing oil prices. The price of oil peaked at $147 a barrel in July 2008 and fell as low as $32 a barrel in December 2008.
So what is it that causes these changes in oil prices and what does it mean for the world’s economies? Read the following articles, which discuss these issues, and look at recent developments in the oil industry.
First fall in oil use since 1993 BBC News (10/6/09)
Trump’s world view Fox News, Interview between Greta van Susteren and Donald Trump (30/6/09) Oil settles above $71; China to boost reserves The Associated Press, Dirk Lammers (29/6/09)
Nigeria worries push up oil price BBC News (29/6/09)
Oil up to near $72 on dollar fall, Nigeria attack Town Hall, Pablo Gorondi (30/6/09)
Chinese demand forecast to boost oil price The Star Phoenix, Joanne Paulson (30/6/09)
Lower oil price hits Total profit BBC News (6/5/09)
Oil price hovers at $70 amid pipeline attacks Financial Times, Miles Johnson, Javier Blas, London (27/6/09)
What is going on in the oil market? BBC News (27/10/08)
Rising oil prices poses threat to recovery, Alistair Darling warns Telegraph (12/6/09)
Fears of oil crunch recede as recession knocks down global demand The Independent, Sarah Arnott (30/6/09)
Questions
- How is the price of oil determined? Give 2 examples of factors that could cause (a) the price of oil to increase and (b) the price of oil to decrease.
- How are company profits affected by the changing price of oil?
- OPEC is an oil cartel. What are the factors that make collusion more likely to succeed? Do they apply to OPEC?
- When prices of oil increase, why do we still use similar amounts of energy; still buy petrol? What’s so special about this commodity? Think about elasticity.
- How is the price and consumption of oil affected by the macroeconomic situation?
In the article linked to below from Slate magazine, Tim Harford, the author of the Undercover Economist, looks at how newspapers are approaching the pricing of online versions of their newspapers and articles. Why is it that all the articles we link to in these news items are free for you to read? How is this sustainable for the newspapers?
Why you didn’t pay to read this MSN Slate (27/11/07)
Questions
| 1. |
Explain the different pricing models that are available for newspapers when pricing the online versions of their papers. |
| 2. |
Discuss the extent to which a newspaper website is a complementary product to the printed version. |
| 3. |
Assess the extent to which competition between newspapers has driven the pricing strategies they have adopted for their websites. |
22nd November marks the day when Americans celebrate Thanksgiving Day. However, the cost of this celebration has increased by 11% in the last year according to figures from the American Farm Bureau Federation. One of the main causes of this is the rise in turkey prices but other factors were important as well.
Thanksgiving dinner cost ‘up 11%’ BBC News Online (16/11/07)
Questions
| 1. |
Using supply and demand analysis, illustrate the price changes for turkeys identified in the article. |
| 2. |
Consider possible factors that may have led to the price changes for turkeys identified in the article. |
| 3. |
Discuss the likely change in the quantity of turkeys demanded as a result of the price rise. |
| 4. |
What is the likely approximate value of the cross elasticity of demand for cranberry sauce with respect to the price of turkeys? |