Newspaper article THE JOURNAL RECORD

Outlook for Commodity Prices Dependent on Global Economy

Newspaper article THE JOURNAL RECORD

Outlook for Commodity Prices Dependent on Global Economy

Article excerpt

In the commodity pits, last year was a tale of two markets. There was energy. And then there was everything else.

The energy complex -- oil, natural gas and home heating oil -- provided the unmitigated stars. At their peaks, natural gas futures prices were up 334 percent; crude oil was up 44 percent, and heating oil jumped 61 percent.

On the other side of the ledger, copper, gold and silver all fell. So did lumber. And it was a bad year for coffee growers.

At year-end, the Commodity Research Bureau/Bridge index of energy futures prices was up a whopping 70 percent, despite a late fall in crude quotes. But small increases and outright declines in other commodity prices muted the gain in the CRB composite price index, which rose a more modest 11 percent.

While an upward blip could occur in the first quarter, energy prices are unlikely to stage a repeat rise in 2001, analysts said. And the outlook for commodity prices in general is greatly dependent on what happens with the global economy.

"In our view, the upward cycle in energy prices, which began in December 1998, has ended," said William O'Neill, director of futures research at Merrill Lynch.

O'Neill said Merrill was projecting that crude oil prices would average $25 a barrel this year, about 15 percent below last year's average but not far below the $26.80 end-of-year price, and that energy prices over all would decline 11 percent.

Then, said William E. Byers, director of futures research at Bear Stearns, "once you get through the winter heating season, the steps that have been taken by OPEC and other oil producers are going to carry prices lower."

As far as commodities outside the oil patch, "the critical thing next year is going to be the answer of whether we have a hard or a soft landing," said Steve Strongin, director of commodities research at Goldman Sachs.

"With very low inventories, if we have another soft landing we would expect to see commodity prices continue to do well. To the extent we begin to experience a hard landing, that would move you back toward an environment where commodities perform poorly. …

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