Fluctuating Commodity Prices: These are the Reasons!

Last Updated: 8. März 2024By

Do you know which resource is known as „the new oil“? According to Tesla CEO Elon Musk, it is the non-renewable resource lithium. This resource is essential for the production of batteries and electric cars.

As our government continues to emphasize the importance of electric cars for the climate change, the price of lithium has skyrocketed. Between 2021 and 2022, the price of lithium has almost quintupled. However, due to a sluggish economy and high inflation, the demand for electric cars has decreased. Currently, there is more lithium available than needed, causing the price to drastically decline. Since its all-time high in 2022, the loss has been 80 percent.

Production of resources does not happen overnight The development of lithium prices is extreme, but typical for resources. Why is that? One reason for the fluctuating prices in the resource markets is the fact that resources cannot be pulled out of a drawer when they are needed. Resources must be extracted and produced, which is often costly and time-consuming.

It is different in the stock market. A capital increase can be decided at a round table – done. New shares can be issued immediately, but this is not the case with resources, making the markets more susceptible to fluctuations.

Resource analyst Thomas Benedix from Union Investment explains on tagesschau.de that resource prices also fluctuate because supply and demand often do not match at a certain point in time. The lead times to bring a new resource supply to the market are often very long. In addition, demand fluctuates cyclically or for economic and technological reasons.

What applies to the oil price Benedix also emphasizes on tagesschau.de that the oil price is a special case. It is subject to geopolitical developments – „whether through military conflicts, but also through organizations that try to influence the oil price like OPEC. The cartel of oil-producing countries wants to optimize its profits and tries to keep the price at a high level through production cuts.“

This was only partially successful last year. At the middle of the year, the price for a barrel of North Sea Brent was still close to $100, but it temporarily fell below $70.

Experts expect a calmer price trend for the oil price in 2024. The recent strong fluctuations in the oil price were also due to the fact that one extreme event followed another. First, the corona pandemic paralyzed the global economy, then there was a rapid recovery in the economy. The Russian attack on Ukraine and the resulting uncertainty also caused strong fluctuations.

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