Commodities and Currencies Take the Spotlight

Commodities and currencies may continue to be in the spotlight for investors this week, as prospects for a Federal Reserve interest rate rise and the Chinese stock market slump work their way around global markets.  With most commodities priced in U.S. dollars, the strength of the greenback, and the slowdown in China is leading a rout in commodity markets.

U.S. WTI benchmark crude oil prices fell by 20 percent in July, the biggest monthly fall since October 2008, while Brent crude oil prices, the international benchmark, fell by 18 percent, the biggest monthly fall since December last year.  Production from Organization of the Petroleum Exporting Countries (OPEC) is up more than 1.5 million barrels per day since the start of the year and the recently announced anti-nuclear deal with Iran will mean more oil on world markets.

And despite the steep decline in the U.S. oil rig count, domestic oil production has risen about 500,000 barrels per day this year to 9.7 million barrels a day, the highest since 1971, according to the U.S. Energy Department.  “If Saudi Arabia and Iraq keep running full tilt and Libya and Iran get their oil production back on track, crude prices could languish below $60 for the next three years,” said Morgan Stanley analyst, Martijn Rats in a research note. “On current trajectory, this downturn could become worse than 1986,” he said.