Commodities: oil price drops by 50%
Early March, Russia refused the proposal of Saudi Arabia to further push up production cuts. This was supposed to be a response to the drop in oil consumption caused by the corona crisis. Saudi Arabia responded by changing tack and will now be increasing production as well in order to safeguard its market share. Due to the drop in demand and increase of supply, the world is flooded with oil, to the extent that a shortage of storage capacity is looming. On 9 March, the oil price dropped by nearly 25% and at the end of the month, the price of Brent oil was halved to just over USD20 per barrel, a level that had not been recorded since 2002. Industrial commodities dropped significantly amidst fear of a global recession. Copper prices fell by approximately 15% (in USD). Gold prices experienced remarkable movements in the last month, and dropped just below USD1,500 per ounce. Technical elements played a role (liquidity requirements of some investors), but valuation elements also had a subduing impact on prices. Due to the reduced inflation expectations, the real rates (and therefore opportunity costs) increased, which makes gold less attractive.