Similar to prices of crops such as dalo and bananas at our local market, prices of international commodities such as oil, sugar and gold can also fluctuate on a day to day basis, depending on the forces of demand and supply. This article provides an analysis of price movements in international commodities specifically oil, sugar and gold, over the last few years given their relevance to Fiji’s trade.
Since 2014, there has been a notable downward movement in international commodity prices. The price of Brent Crude oil (a benchmark in the industry) has fallen by more than half from US$107.20 per barrel in January 2014 to US$49.71 in June 2016. Many factors have underpinned this outcome. A significant demand side factor is the on-going weakness in the global economic recovery resulting in a corresponding weaker demand for crude oil. In particular, China, one of the largest consumers of crude oil, is experiencing a slowdown in economic activity, which has lowered its demand for crude oil. On the supply side, many major oil producers have maintained, or in some instances, increased their output. For instance, the discovery and production of shale oil and gas (very close substitutes) and the lifting of the 40 year export ban in the United States (US) has vastly contributed to the supply glut thus pushing prices further down. More recently, the lifting of economic sanctions against Iran (another oil producer and exporter) and the many failed attempts by major oil exporters to curb supply by freezing production, so far suggests that oil prices will remain well below historical highs in the near future. This is also in line with the International Monetary Fund’s World Economic Outlook Update for July 2016, which projects the prices of crude oil to be below US$45 per barrel in 2016 and slightly rise to US$50 in 2017 based on the June futures markets.1 Fiji’s annual average value of retained mineral fuel imports from 2011-2015 is $670 million, which equates to approximately 15 percent of total imports. As such, any sizeable movement in crude oil prices would have a significant impact on Fiji’s balance of trade position.