Oil and food 2007 milestones and 2008 prospects

For crude oil, the 2007 milestone could best be described as "the third straight year of practically stagnant supply in the face of higher demand (and prices)."

This comes from both
EIA data as of Jan. 08, 2008 at http://www.eia.doe.gov/emeu/steo/pub/contents.html (table 3a), and
IEA data as of Dec. 14, 2007 at http://omrpublic.iea.org/currentissues/full.pdf.

World oil production
year 2005 2006 2007 2008
EIA 84.6 84.6 84.8 87.6 (wishful thinking?)
IEA 84.6 85.4 85.5

World oil consumption
year 2005 2006 2007 2008
EIA 83.7 84.8 85.9 87.5
IEA 83.9 84.7 85.7 87.8

Clearly 2008 will be "interesting times" in the Chinese sense for the oil market, since, for the {EIA IEA}, projected 2008 global demand will be {2.7 2.3} Mpbd higher than 2007 global supply (*). So,

• either world oil production experiences a "surge" in 2008 (do you feel lucky?),
• or a good recession is allowed to take place in the OECD,
• or the oil price will surge deep into the triple digits in 2008 (and not only in dollars).

(*) The trend in EIA projections is in fact for worse, since as of Dec. 11, 2007 they were also predicting 2008 demand "only" 2.3 Mbpd higher than 2007 supply.

For food, the 2007 milestone is best described by the FAO in their November 2007 Food Outlook at http://www.fao.org/docrep/010/ah876e/ah876e00.htm

"The FAO food price index ... in September 2007 ... stood at 172 points, representing a year-on-year jump in value of roughly 37 percent. The surge in prices has been led primarily by dairy and grains, but prices of other commodities, with the exception of sugar, have also increased significantly.

... What distinguishes the current state of agricultural markets is rather the concurrence of the hike in world prices of, not just a selected few, but of nearly all, major food and feed commodities. As has become evident in recent months, high international prices for food crops such as grains continue to ripple through the food value/supply chain, contributing to a rise in retail prices of such basic foods as bread or pasta, meat and milk. Rarely has the world felt such a widespread and commonly shared concern about food price inflation, a fear which is fuelling debates about the future direction of agricultural commodity prices in importing as well as exporting countries, be they rich or poor."

And the linked Market summaries page (.../ah876e01.htm) adds, for cereals:

"For most cereals, supplies are much tighter than in recent years while demand is rising for food as well as feed and industrial use. Stocks, which were already low at the start of the season, are likely to remain equally low because global cereal production may only be sufficient to meet expected world utilization. International prices of cereal have risen, fuelling domestic food price inflation in many parts of the world. Trade is expected to contract because of high and volatile prices, coupled with soaring freight rates."

Therefore, price action for wheat, rice and soybeans as well as the evolution of global cereal stocks (dropped to 428 Mt for 2006/2007) look like important milestones to include.

Particularly since, from the December 17 FAO communique at http://www.fao.org/newsroom/en/news/2007/1000733/index.html

"FAO is urging governments and the international community to implement immediate measures in support of poor countries hit hard by dramatic food price increases. Currently 37 countries worldwide are facing food crises due to conflict and disasters. In addition, food security is being adversely affected by unprecedented price hikes for basic food, driven by historically low food stocks, droughts and floods linked to climate change, high oil prices and growing demand for bio-fuels. High international cereal prices have already sparked food riots in several countries."