The continuing tug-of -war between emerging market and developed market commodity demand

Jeffrey Currie, Goldman Sachs International

There has been a commodity imbalance with oil, which has historically seen global output lower than global production capacity. However, this is starting to change due to a range of interrelated issues, such as commodities, prices, resource realignments between Emerging Markets and Developed Markets (EM, DM); as well as increasing macroeconomic correlations. These changing relationships are explored in relation to what is happening within oil markets and oil pricing, considering the changing relationships between DM and EM. It is suggested that as DM recovers following the financial crisis, it will push the oil market back towards its effective production capacity by 2011. In the long term, given that the commodity crisis is a supply problem, more than a demand problem, demand in the DM will have to contract going forward to make room for EM demand increases (due to supply constraints).