How oil and metal prices will move
Oil and metal prices for batteries are both on the rise. But it is not certain that the couple trend will continue forever
Oil is returning, wrote the Economist referring to the rise in prices, even above $ 60 a barrel, after the collapse of last year. But crude oil is only part of the story. Because the value of the metals used in batteries is also growing on the market: lithium, cobalt, copper, nickel, rare earths. At first glance, it would seem that investors are betting on what the energy of the future will be, whether fossil fuels or "clean" ones. According to the weekly, however, the reality is more complex.
BECAUSE THE PRICE OF OIL GOES UP
The rise in oil prices is linked to demand expectations, but only in part. However, it is true that the demand for crude oil is growing in China, and the consumption of liquefied petroleum gases is also increasing in India . In the United States, then, the new president Joe Biden has proposed a plan to stimulate the economy of 1900 billion dollars that could reactivate economic activities and consequently the demand for oil. Despite the optimism, notes the Economist , the difficulties of vaccination campaigns in various countries and the alarms for new coronavirus variants still weigh on the oil market.
As mentioned, the rise in oil prices is not so much due to the situation on the demand side, but on the supply side. The countries of the OPEC + alliance are voluntarily reducing their output. Saudi Arabia, in particular, announced in January that it would cut its production by another million barrels per day in February and March to balance the market. In the United States, crude oil production levels in January were 13 percent lower than the year before. Iran's exports do not appear to be on the verge of returning, as Biden says he is in no hurry to lift sanctions on the country. In some parts of Africa, output is affected by the lack of investment in new projects and the decline in productivity of existing ones.
BECAUSE THE PRICES OF METALS FOR BATTERIES ARE GOING
As for the prices of metals for batteries, however, the situation is different. In this case, growth is actually linked to demand. Especially the Chinese one: in January 179,000 new energy vehicles were sold in the country, of which 54,000 pure electric cars. A fact which consequently supported the demand for cobalt, lithium and rare earth minerals such as neodymium.
Even in the case of metals for batteries, the shortage of supply played a role in supporting prices. The COVID-19 pandemic has caused problems for supply chains: for example to South Africa, where much of the amount of cobalt available on global markets is shipped, but also to China itself, the largest exporter of rare earths. There have also been problems with supply chains in Indonesia , the largest nickel producer in the world.
TWO DIFFERENT DIRECTIONS, OR NOT?
Over the 2020s, the Economist writes, oil and metal prices for batteries might be expected to take two different directions: demand for crude oil will decline, while demand for materials for electric cars and others will rise. "Green technologies". However – the weekly specifies – some supply shortage problems could cause oil and metal prices to continue to rise together, at least for a period.
HOW OIL WILL GO
As for oil, high prices in the past usually favored investments in new projects, which led to an increase in production and ultimately to a lowering of prices. But this mechanism has jammed and there is less propensity to invest in crude oil: because the pandemic has reduced demand; why there is a global trend in the energy transition towards decarbonisation; because the new president of the United States – the largest economy in the world – says he wants a break from the oil industry. Large companies in the industry such as ExxonMobil reported substantial losses in 2020. BlackRock , the largest investment firm in the world, said companies must adjust to the new environment of reducing net emissions by developing ambitious strategies aimed at sustainability.
HOW METALS WILL GO
Regarding the metals for batteries, the Economist speaks of "a wave of green enthusiasm" in the markets. Tesla, which makes electric cars, is worth more than the other eight major automakers combined. According to JPMorgan Chase, electric vehicles (excluding hybrids) will increase from 3 to 15 percent of the share of new vehicles sold globally from 2020 to 2030. Consulting firm CRU Group estimates that electric cars are worth about a quarter of global demand for cobalt and neodymium and nearly half that of lithium. However, it is not only cars that support metal prices: copper, for example, is used in electric vehicles but also in solar panels and wind turbines.
A NEW SUPER CYCLE OF RAW MATERIALS?
These days we are talking about a new "super cycle" of raw materials: indeed, for the investment bank JPMorgan Chase it has already started. The sharp rise in metal prices has something to do with it. Copper, for example, hit $ 8,400 a ton this week, and according to financial services firm Citigroup it will soon hit $ 10,000.
The general dynamics are those already seen: optimistic forecasts on the increase in demand for metals – necessary in industrial processes and for clean energy technologies – on the one hand; scarcity of supply on the other.
Major mining companies such as BHP, Rio Tinto and Glencore reported positive results and announced dividend increases.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/energia/petrolio-metalli-prezzi/ on Sun, 21 Feb 2021 15:00:56 +0000.