A crude copy: 4 reasons why this could be a false dawn for oil prices

Yesterday Brent crude prices jumped by over 5% to over $40.50 per barrel, the first time the oil price has risen above $40 per barrel since early December and up more than 40% from its January low. But, could this be a false dawn for oil prices just like in 2015?

Loss of confidence in output freeze: Saudi Arabia, Qatar, Venezuela and non-OPEC member Russia agreed last month to freeze output at January levels, but only if others do the same. Russia’s energy minister has indicated that a meeting between OPEC and other leading energy producers could take place between 20th March and 1st April. However, the market could quickly lose confidence in the initiative, even if there is agreement. The key to an agreement taking hold will be Iran’s participation, but it is unlikely to want to cede acquiring market share now that sanctions have been removed. Recent isolated cuts to output (Iraq, Nigeria) were more to do with unrelated geopolitical than an attempt to actually control output.

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Silver prices: The top 10 most important drivers

1) US Dollar

Like most internationally traded commodities silver is priced in US dollars. At its most basic a decrease in the value of the US dollar relative to a commodity buyer’s currency means that the purchaser will need to spend less of their own currency to buy a given amount of the commodity. As the commodity becomes less expensive demand for the commodity rises, resulting in an increase in the price and vice versa.

As with gold but to a lesser extent, the value of silver, a fiat commodity currency, will also be largely determined by its attractiveness relative to other fiat currencies – the fiat paper currencies issued by central banks.

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End to seasonal stock build likely to signal end to iron ore price rally

Prices for the steel-making raw material declined to a near decade low in mid-January, but have since surged by 37% to $47.73 per tonne, its highest level since June. Prices have surged amid restocking by Chinese steel mills and signs of decreased iron ore supply.

Chart: Apr-16 iron ore futures contract

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Set in a longer term context, this move is a drop in the ocean. Just two years ago iron ore prices were over $120 per tonne.

In China, which accounts for about 50 per cent of global steel supply, benchmark steel prices have also climbed, bolstering mills’ margins. Rebar, used in construction, closed at 1962 yuan ($US301) a tonne earlier this week after closing at a record low of 1626 yuan in November.

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