Reading the Commodity Market Barometer: Energy and Non-Energy Commodity Price Movements

By Ryan Arian

The prices of energy commodities and non-energy commodities may not be as closely linked as has been previously assumed.

As the world’s population has burgeoned over the past decade, particularly in regions like the Asia-Pacific, technological and infrastructural developments and improvements have also occurred. Increased economic and industrial activities worldwide have contributed to a growing global demand for energy,1 and this demand has caused the price of energy commodities such as liquid fuels, coal, natural gas, and electricity to rise.

Many commodity market participants believe that the prices of energy commodities, particularly oil, are a reliable barometer for all commodity price fluctuations. The assumption, however, that all commodity prices are interdependent and driven by energy prices leaves a lot of room for debate. At least in the near past, between 2012 and 2013, U.S. energy and non-energy commodity prices failed to follow the same pattern. In other words, the prices of energy commodities and non-energy commodities may not be as closely linked as has been previously assumed.

Global Energy Dynamics                                   

The global energy trading landscape is changing as a result of several major shifts in supply and demand. Higher volumes of energy products are increasingly required in the Asia-Pacific region, a significant demand shift from previous years, when high volumes of energy products were imported to the Atlantic basin region.1

The IEA’s World Energy Outlook 2013 (WEO2013) report examines global energy prospects until 2035. In this report, China is named the principal source of global energy demand for the upcoming decade, while India is taking the lead in the 2020s. Overall, non-OECD Asia accounts for 65% of global energy growth in WEO2013, while the Middle East, Africa, and Latin America account for 10%, 8%, and 8% of growth respectively. The map below depicts projected energy demands until 2035; the map reveals that non-OECD Asia (red) will soon become a key consumer of energy in comparison to OECD countries (blue). The U.S. in particular will likely meet all of its energy needs domestically by 2035 as a result of its fossil fuel boom.

Figure 1: Global energy demand, 2035 (IEA 2014)

Due to the projected increase in world energy consumption, prices of energy commodities are experiencing upward pressure. As the latest International Energy Outlook 2013 (IEO2013) data report from the U.S. Energy Information Administration (EIA) suggests, the global energy mix has been dominated by liquid fuels since 1990 and will continue to be dominated by liquid fuels until 2040.

Figure 2: World energy consumption, 1990-2040 (EIA 2013)

A summary of the current global energy outlook by fuel type is given in the sections below.

Liquid Fuels †                                                                                            

Oil prices are determined by several factors, such as expectations about future demands for petroleum and other liquid fuels, as well as projected production levels by OPEC and other major producers in the market.

The oil sector will face major shifts over the coming decade. Demands for crude oil will decline in OECD countries as a result of decreased economic activities. New fossil fuel developments, particularly the U.S.’s shale oil and gas revolution, will secure supply in the short term. By contrast, demands for crude oil will increase in the Middle East and non-OECD countries in Asia. China, for example, is expected to become the largest oil consumer in the world by 2030. India and the Middle East will become the second and third largest centers of global oil demand by 2030, respectively. As a result, an Asian benchmark for petroleum products will likely soon be established.

North America is projected to become a large exporter of oil products, while Asia is expected to become the unrivalled center of the global oil trade. New oil refineries in China, India, and the Middle East will contribute an estimated 13 million barrels per day (Mbpd) of refined oil to the global market by 2035.1

Overall, global consumption of petroleum and other liquid fuels will grow from 87 million barrels per day (Mbpd) in 2010 to 115 Mbpd in 2040, an increase of 32% for this energy source.2 The transportation and industrial sectors account for 63% and 37% of the total increase in liquid fuels consumption from 2010 to 2040. By 2035, crude oil production will rise to 101 Mbpd; by 2040, global demand for petroleum will rise to 110.4 Mbpd.


Due to environmental concerns about coal-powered generation, the OECD’s demand for coal is projected to fall by 25% until 2035.1 However, demands for coal are expected to increase in non-OECD countries, especially China and India. Coal plays a major role in providing energy in China and India, two major Asian power houses that drive global demand. China’s coal consumption will increase by 1.3% annually to 220 quadrillion British thermal units (Btu) in 2040. As a result, coal is likely to remain the second-largest energy source worldwide.

Figure 3: Global coal consumption by country, 2010 –2040 (EIA)

Natural Gas

The market for natural gas is expanding; global demand is projected to rise by almost 64% to 185 trillion cubic feet (cu ft) in 2040.2 Natural gas is a popular choice for many electric power and industrial sector organizations worldwide.

LNG accounts for a growing share of the global natural gas trade, doubling from about 10 trillion cu ft in 2010 to around 20 trillion cu ft in 2040.2 Changes in major LNG suppliers are expected to create new connections between North American and Asian-Pacific gas markets, narrowing the wide regional gas price differentials that exist today.1


Global electricity generation is expected to rise by 93% to 39 trillion megawatt hours (MWh) in 2040.2 The following non-OECD countries will constitute a significant portion of global electricity demand until 2035: China (36%), India (13%), Southeast Asia (8%), and the Middle East (6%).1

Figure 4 displays global electricity generation. The fastest-growing renewable energy sources are hydro and wind power, followed by natural gas, nuclear, and coal, whereas liquid fuels (at the bottom of the generation stack in Figure 4) are barely affected by the rising demand for electricity. Instead, liquid fuels’ share is actually dropping in the total generation stack.

Figure 4: World electricity generation stack, 2010 – 2040 (EIA)

Energy vs. Non-Energy Commodity Comparison

Since energy products are used by other sectors, the public tends to believe that the rise in energy commodity prices in recent years translates to an increase in the prices of non-energy commodities such as metals and agricultural products. To assess the validity of this common belief, let’s look at two baskets of energy and non-energy commodities prices in the U.S. between 2012 and 2013. But first of all, let’s focus on the major energy product: oil.

In 2013, WTI crude was influenced by different drivers. On the one hand, Libyan supply disruptions pushed crude prices up. On the other hand, U.S. crude oil production approached a historical high, increasing by 1 Mbpd (the largest observed annual increase in the country’s history) as improvements in transportation infrastructure enabled crude oil transportation to refineries, offsetting the risk premium associated with a supply shortage. Increased U.S. production levels contributed to relatively stable global crude oil prices in 2013.

Through innovative technological advancements in hydraulic fracturing and a stronger pipeline network, the U.S. is set to increase its domestic energy production and significantly reduce its reliance on petroleum and other liquid fuels. According to AEO2014, the average expected WTI spot crude price will be $107 USD/barrel (Bbl) (in 2012 dollars) until 2025, whereas the Brent crude oil spot prices for the same period will be traded at $109 USD/Bbl (in 2012 dollars) for the same period.3 This slight price increase for only WTI in a short-term projection demonstrates how strong supply is going to dominate tepid demand, causing price stability in the market. In 2014, WTI crude prices are likely to stay stable, with a $9 USD/Bbl buffer to spread across the next 10 years according to the latest projections in the AEO2014 Reference case.

Now let’s compare short-term price predictions for different commodities. The first energy basket contains prices for the following energy commodities in 2013: WTI crude, PRB coal, Henry Hub natural gas, and PJM electricity. In the second basket, the following non-energy commodities are included: gold, silver, aluminum, copper, soybean, wheat, corn, and sugar.

Figure 5: ZEMA Dashboard cross-commodity comparison in the U.S., 2012–2013 (NYMEX)

The ZEMA graphs above display NYMEX future settlements data for selected energy and non-energy commodities against annual average prices (represented with a grey line). The first row of graphs shows energy commodities; these commodities’ weekly price average movements are depicted against the annual price average. All selected energy commodities prices went up in 2013 as compared to 2012: WTI crude increased by 4%; PRB coal increased by 19%; Henry Hub natural gas increased by 32%; and day-ahead electricity prices in PJM increased by 13%. On the other hand, metals prices, which are displayed in the second row, dropped rather harshly (gold by 16%, silver by 24%, aluminum by 8%, and copper by 7%). Furthermore, agricultural prices, shown in the bottom row, fell slightly as soybean, wheat, corn, and sugar dropped by 3%, 10%, 17%, and 21% respectively.

Overall, then, the prices of major energy commodities in the U.S. increased in 2013 when compared to 2012 levels, while the prices of non-energy commodities took a dive in the same period. In the past, crude oil price changes were directly correlated with the price of other commodities. This is not the case anymore! This positive correlation does not exist in the U.S., which suggests that non-energy commodity sector prices are responding to other factors. As such, the slight projected increase in 2014 U.S. crude oil prices is likely to have miniscule, if any, impact on the rise of non-energy commodity prices in 2014.

As global energy trading shifts to non-OECD Asia, commodity market participants need to have access to relevant market data to assess market fluctuations caused by macroeconomic principles, trading patterns, and relevant pricing structures. One of the most prominent issues faced by energy market participants in particular is how energy generation, distribution, and consumption data can be transformed to serve a modern economy, as U.S. Energy Secretary Ernest Muniz mentioned in an attempt to highlight the energy challenges Americans face today.

Market participants who desire to address this challenge and make more informed decisions based on available data can use ZEMA, a data management analytical software, to help.

Notes and Sources

Petroleum and other liquid fuels include crude oil and lease condensate, natural gas plant liquids, bitumen, extra-heavy oil, and refinery gains. Other liquids include gas-to-liquids, coal-to-liquids, kerogen, and biofuels.

1 IEA World Energy Outlook 2013:

2 EIA AEO2013:

3 EIA AEO2014 Reference Case – Early Release:

This article is republished by permission from ZE datawatch® All rights reserved.

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