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Gold/Mining/Energy : Strictly: Drilling and oil-field services -- Ignore unavailable to you. Want to Upgrade?

To: Rob Shilling who wrote (32737)	12/11/1998 7:52:00 AM
From: Tomas	Respond to of 95453

Financial Times Friday: Crude oil shock Lex Column Oil is selling for less than $10 a barrel, metals prices are depressed and now the benchmark commodities futures index has dropped to its lowest level for more than 20 years. In one sense this is nothing new. The trend in commodity prices has been relentlessly downwards - look through the cycles and each floor is lower than the previous one. Metal prices have been falling by 1-3 per cent a year in real terms over the past decade, and crude is back to where it was before the first oil shock in real terms. The reason is that producers, particularly in the west, have reduced costs and passed on much of the benefit. More recently, however, this trend has been compounded by Asia's slump, which has exposed the structural overcapacity in markets like nickel and oil. So far, lower commodity prices have been a huge boon to a shaky global economy by keeping a lid on inflation. But they are now falling so fast that their impact could turn from disinflationary to outright deflationary. There is already evidence of a spiral where producers are dumping stocks in anticipation of lower prices. And current price levels are creating huge hangovers for Latin American and Middle Eastern economies that rely on oil and copper. Eventually, the cycle should prove self-correcting: loss-making producers will not build the new capacity needed to satisfy recovering demand. But there is much pain to face first.