Since the end of February, the geopolitical situation continues to heat up, resulting in increased concerns about the reduction of global crude oil supply. In the short term, crude oil prices rose sharply, triggering the market's concern about a new round of oil crises. Oil crisis refers to the economic crisis caused by the change in oil price. So far, there are three recognized oil crises, which respectively occurred in the 1970s (twice) and 1990s (once).
The oil crisis directly affects the operating costs of all walks of life and has an important impact on the global economy. For copper, fuel and electricity costs account for 15%-25% in upstream copper mining. Changes in oil prices determine upstream costs and profits to a certain extent. In addition, copper is sensitive to economic changes, and economic changes before and after oil crises usually cause large changes in the copper market. In view of this, this paper will analyze the impact of the three oil crises on the copper market.
Look back at the three oil shocks
The three oil crises in the world occurred in 1973, 1978 and 1990 respectively, and their precipitating factors and results are as follows:
(1) the first oil crisis as the fourth Middle East war in October 1973, of the petroleum exporting countries to fight Israel and its supporters, decided to cut oil production, an oil embargo and the western countries, December Arab members of Opec will benchmark crude prices increased from $3.011 a barrel to $10.651. From October 1, 1973 to January 1, 1974, the international oil price rose from us $3.11 to US $11.65 per barrel and severely affected the economic growth of industrialized countries.
(2) Second Oil Shock: Precipitated by political changes in Iran and the Iran-Iraq war in late 1978, global oil production plunged from 5.8 million barrels per day to less than 1 million barrels per day. As a result, oil prices soared from $13 a barrel to $34 in 1979-1980, a major cause of the western economic recession.
(3) The third oil crisis: It was triggered by Iraq's occupation of Kuwait in August 1990, and the interruption of crude oil supply due to Iraq's economic sanctions by western countries. As a result, in the third quarter of 1990, international oil prices rose sharply from around $20 to $41 per barrel, resulting in a significant decline in global GDP growth rate.
Copper price changes before and after the oil crisis
Based on the monthly average price data of copper and crude oil published by the World Bank, comparing the trend of the two before and after the oil crisis, we find that the copper price also recorded a large increase in the oil price rising stage of the three oil crises. During the first oil crisis, crude oil prices rose 3.8 times and copper prices 56%. During the second oil crisis, the price of crude oil rose 1.8 times and that of copper by 90%. During the third oil crisis, the price of crude oil rose 1.25 times and that of copper 17 percent. Looking from rising, oil price and copper price does not exist relative definite proportion relation.
At the same time, in the oil price decline stage of the three oil crises, the copper price also recorded a large decline, and in the process of decline, the copper price decline slope is greater than that of crude oil.
Further observation can also be found that before the occurrence of the three oil crises, copper prices were in a rising trend, and in the early stage of the oil price rising stage of the oil crisis, copper prices were relatively stagnant, and in the late stage of the oil price rising stage, copper prices tend to be stronger.
Summary: Before and after the oil crisis, the macroeconomy is basically a process from strength to weakness, and the impact of the oil crisis on the economy depends on the strength of the economy before the crisis. The stronger the economy before the crisis, the longer the negative feedback time of oil supply shock.
Copper supply and demand change before and after the oil crisis
Before the first oil crisis, thanks to faster growth in copper demand, the global copper market changed from oversupply in 1972 to undersupply in 1973, and copper inventories were rapidly restocked. However, with the impact of oil supply and rising copper prices, copper demand peaked in early 1974 and then weakened rapidly. In 1974, market supply and demand turned to oversupply, and global copper inventory turned to increase.
Before the second oil crisis, the slow growth of copper supply and the faster growth of demand made the global copper market in three consecutive years in the state of supply is less than demand, copper inventory continuous destocking. After the oil supply shock, despite the decline in demand, the frequent increase in supply due to disturbance factors was not obvious, and the global copper inventory continued to decrease in 1979. In the first half of 1980, with the weakening of the economy, copper demand declined rapidly. However, in the second half of the year, the rapid decline of copper price and the strike of COPPER mines in the United States led to the strong supply and demand again. Over the next two years, global copper supply and demand turned to oversupply.
Before the third oil crisis, the supply and demand of the global copper market were relatively balanced. In 1989, the copper inventory was reduced slightly. After the oil crisis, the global copper demand declined in 1990, but the supply maintained a small growth trend, copper supply and demand to oversupply change, in 1991, the global copper market maintained oversupply.
Summary: The three oil crises all led to the weakening of market risk sentiment, among which the risk sentiment of the first crisis was the most affected, and the impact of the second and third crises on risk sentiment became shorter and weaker.
Conclusion: Based on the above analysis, it can be concluded that the oil crisis has the following influences on the copper market: 1. During the oil crisis, copper prices will rise and fall to a certain extent along with the rise and fall of oil prices. 2. During the oil crisis, both macroeconomic and copper market supply and demand experienced a process of strength and weakness, and the change of supply and demand was mainly reflected in the change of macroeconomic demand. 3. During the oil crisis, market risk sentiment was impacted to varying degrees, and the impact gradually weakened.