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By: Duncan McCall | dsm5548@psu.edu | January 24, 2019
The price of copper futures has been very volatile as of the past month. It initially dropped due to the weaker than expected economic growth in China, along with a cut in Apple’s (AAPL) sales forecast. A few days ago, it rose due to the belief that the trade war between the US and China might be ending soon. It dropped again today due to concerns over slowing global economic growth. China (which accounts for 45% of the global copper demand) has expanded at its slowest pace in nearly 30 years. The International Monetary Fund has decreased its forecast of the global economic growth in 2019 to 3.5%, down from the forecasted 3.7% in October and 3.9% in July.
In the oil futures market, the price has fallen on Wednesday after being on the rise since Christmas Eve. The market is keying into the growth risks from the US-China trade war and US government shutdown. The International Monetary Fund (IMF) decreasing their forecast of global economic growth has not helped the oil futures market as well. Brexit and Chinese economic growth slowdown also play a negative factor in this market. Later today, The Energy Information Administration is set to release a report on US oil inventories. There are differing forecasts on this report, with the Wall Street Journal forecasting a 600,000-barrel decrease in crude oil supplies, but a 2.7-million-barrel increase in gasoline supplies. The American Petroleum Institute forecasts a 6.6-million-barrel increase in crude oil supplies, 3.6-million-barrel increase in gasoline supplies, and a 3.6-million-barrel increase in distillate supplies. This matters because an increase in inventories of oil that is more than expected indicates a weak demand and a bearish market. This works the same way in the other direction, if the inventories increase less than expected, it indicates a strong demand and bullish market. With this huge difference in forecasts, the price of oil futures is sure to fluctuate in the near future. The Organization of Petroleum Exporting Countries (OPEC) has also agreed in late 2018 to hold back crude output collectively by 1.2 million barrels of crude oil a day for the first half of 2018.
My prediction for the copper futures market is that it will continue to decrease as uncertainty with the economic growth of both China and the global economy remains high. With China being such a major consumer of copper, it is hard to see it being on the complete upswing until they show that economic growth will increase.
My prediction for the oil futures market is that it will continue to be on the rise. I expect that the US will increase oil inventories at a rate lower than the forecast, increasing the oil prices. Also, with the OPEC limiting production in the market, the supply will decrease driving prices up. This will cause the price of oil futures to rise and for it to rise back to normal levels.
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