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Posthaste: Why oil will miss out on the next commodity supercycle

Financial Post logo Financial Post 2021-03-05 Pamela Heaven
a sign on the side of a building: Oil's days as a leader in commodity supercycles may be over, argues economist.  © Provided by Financial Post Oil's days as a leader in commodity supercycles may be over, argues economist.   a close up of a sign
 

Good Morning!

Oil is having a great day; in fact it’s had a great year so far.

Prices have soared in 2021, fuelled both by OPEC+ keeping a lid on supply and a vaccine-driven global recovery pushing up demand.

Crude prices jumped again today, up 2% to the highest in 14 months, after OPEC and its allies agreed not to increase supply in April.

But its days as a leader in commodity supercycles may be over.

Supercycles are when commodity prices go through long periods of boom and bust and in the past two, oil has particularly benefited, says Capital Economics.

But it argues that oil prices will not outperform other commodities in the next supercycle for two reasons.

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First, the very thing likely to trigger the next boom, the transition to green energy, will lead to a “structural decline” in oil demand. Governments in advanced economies are saying they will invest heavily in the shift to electric vehicles and many are encouraging cleaner fuels such as natural gas and hydrogen to replace diesel and fuel oil.

Oil consumption in the emerging world is also likely to peak in the next decade as their economies, including India, suffer long-term damage from the pandemic, argues Capital. Many of these countries as well are offering incentives for electric vehicles, particularly China and India.

Capital, like many other forecasters, see global oil demand peaking in 2030 and falling “continuously thereafter.”

Its second argument is that an abundance of oil supply will push prices down.

“The greater flexibility of U.S. shale production and the desire by many oil producers, particularly in OPEC+, to avoid their reserves being left untapped means that the world will soon be awash with oil,” said Capital economist Samuel Burman.

The new star of any future commodity supercycles will be metals, he says.

Electric vehicles, which contain three times the copper and 25% more aluminium than cars that run on gas, will drive up the demand and prices of these metals and more.

Unlike oil, metal mining involves a much longer lead time and production cannot be ramped up as quickly. Such supply constraints will support prices.

“All told, oil is unlikely to participate in the next commodity supercycle. Instead, we think that if the move to a greener economy leads to a supercycle in prices, it would be confined to metals given the much brighter demand prospects as well as supply constraints,” said Burman.

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a person sitting on a motorcycle

GREEN MACHINE Meet Sam Bruneau, centre, Paul Achard, right, and Gabriel Bernatchez: Three friends from university who started a company in a three-bedroom apartment in Montreal and are now at the forefront of a revolution in the $50-billion world of motorized power sports. Building the world’s first production electric snowmobile isn’t as easy as it sounds, even when you hail from Quebec, the birthplace of the Great Canadian winter ride. Joe O’Connor has the story on the company and its intrepid founders. John Mahoney/Montreal Gazette/Postmedia

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  • China National People’s Congress opens
  • A panel discussion with Prime Minister Justin Trudeau on “The Global Perspective of Equality: Leading for All” will be streamed as part of the SHE Conference
  • Environment and Climate Change Canada will hold a technical briefing on the proposed Greenhouse Gas Offset Credit System regulations
  • Conservative Leader Erin O’Toole speaks at an Oakville Chamber of Commerce event
  • Today’s data: Canada trade balance, U.S. non-farm payrolls, U.S. trade balance

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Here is a sobering chart from RBC Economics’ latest report on how women are faring in the pandemic recession. According to RBC, almost half a million Canadian women who lost their jobs during the pandemic had not returned to work as of January. It estimates that more than 200,000 women have fallen into the ranks of the long-term unemployed, a threefold increase from last year. The longer they remain out of the workforce, the greater the risk that their skills will erode.

chart © Provided by Financial Post    

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You’ve probably heard that Canada has beaten the U.S. to the punch with the launch of the first-ever Bitcoin Exchange Traded Fund (ETF) in North America. But should you buy in?

If you’re going to put your savings on the line, at least make the risk be an informed one and prepare to invest with some trading education. Learning how to best assess a single stock and analyze patterns is essential and our content partner StackCommerce can help.

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Today’s Posthaste was written by  Pamela Heaven (@pamheaven), with files from The Canadian Press, Thomson Reuters and Bloomberg.

Have a story idea, pitch, embargoed report, or a suggestion for this newsletter? Email us at posthaste@postmedia.com , or hit reply to send us a note.

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