Lombard Odier: Oil, other commodities to stay cheap for quite a while

By Andrei Skvarsky.

Swiss bank Lombard Odier’s chief economist argues that low prices for oil and other commodities are here to stay.

One reason is China. Because of shifting its focus from investment-led growth to consumer-driven sectors, the world’s second largest economy has less need for commodity imports, Samy Chaar told a media event in Moscow.

Furthermore, there is generally less financial demand for commodities across the world because of the strong US dollar, according to Chaar, who says cheap commodities and the strong dollar remain the story of today’s global economy.

Chaar pointed out the political dimension of the issue of oil, whose sunken prices give rise to more anxiety than the cheapness of other commodities. Oil is persistently overproduced, but political barriers would prevent reducing its supply if no economic obstacles existed, according to the chief economist of the Geneva-based bank.

The oil market is no longer dominated by the Organisation of Petroleum Exporting Countries (OPEC). It is Saudi Arabia, the United States and Russia that rule the roost there. Together the three countries produce 35% of the world’s crude.

But strained political relations between the US and Saudi Arabia, between the US and Russia, and between Russia and Saudi Arabia would preclude any deal if business considerations were not a factor, Chaar said.

On the other hand, low prices for commodities, while damaging to their producers (cheap oil, for example, is one of the main causes of Russia’s dramatic economic downturn over the past couple of years), are a net positive in global terms, Chaar said.

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