US economy in recovery, oil prices lower

The US economy is in recovery. In December 2014, employment increased by 252 000, which means unemployment fell to 5,6%, the lowest level since the recession eight years ago. Although there was no increase in average remuneration, the US consumer’s spendable income has increased. More jobs, higher property prices and the lower oil prices are all providing impetus to US demand growth. The same is true for the United Kingdom.

Oil prices decreased from more than US$100 per tonne in mid-2014 to the current US$45 per barrel. Supply and demand factors resulted in the sharp decrease in oil prices. The US’s own oil production has also increased, making the US the world’s top oil producer, with Saudi Arabia in the second and Russia in the third position. Slower economic growth in China and other countries is affecting demand for oil. Increased fuel efficiency has also affected fuel demand. On the supply-side, Opec has decided to maintain production levels in spite of the lower prices. In time, lower oil prices will result in increased demand, again leading to higher prices. This will probably not happen soon.

The lower oil prices will affect the biofuel industry in the USA. Lower oil prices puts pressure on the profitability of the biofuel industry and will probably result in less grain used for biofuels. This will affect US grain prices. The large local maize crop in 2014 will ensure that South African maize prices remain at export parity levels. The size of the 2014/2015 crop is still uncertain but good rains in January in major producing areas will probably result in a good crop. Local grain prices will therefore remain at current levels.