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Futures File: China's move causes global stock markets to fall

Price of crude oil at lowest level in nearly 12 years

Walt and Alex Breitinger

Here is this week’s edition of Futures File, our weekly commodities wrap-up:

CHINA WOES MELT MARKETS

Global markets took a steep dive this week after China announced that it was depreciating its currency in an effort to boost its economy, which has been slowing recently. This sign of weakness sent Chinese and global stock markets sharply lower.

Many commodities markets dropped on fears that the world’s largest commodity buyer was in trouble. One of the hardest hit markets was copper, which fell to a seven year low at $1.99 per pound. Meanwhile, U.S. agricultural products came under pressure as well, especially corn, which China uses to feed its pigs and poultry.

CRUDE CAN’T STOP SLIPPING

Crude oil prices dropped near $32 per barrel this week, the lowest price in almost a dozen years. Prices are continuing to feel pressure from record-high supplies, and Chinese economic concerns added to dismal outlooks for global oil demand in the coming months.

The drop came despite growing turmoil in the Middle East, where tensions between Saudi Arabia (Sunni) and Iran (Shiite) are rising.

The two Islamic nations cut diplomatic ties after the Saudis executed a Shiite religious leader, which incited Iranian protesters to attack the Saudi embassy in Iran. Deepening the gulf between the two nations, Iran claimed Thursday that Saudi Arabia intentionally bombed the Iranian embassy in neighboring Yemen. The two nations are effectively fighting a proxy war in Yemen between the Sunni-led Yemeni government and Shiite Houthi rebels.

Under normal conditions, the fear of war between the Middle East’s two largest producers would cause an explosion in oil prices, but this week’s news barely garnered a small rally.

Some oil analysts take this muted response as yet another sign that prices could continue falling toward $20 per barrel, a price that hasn’t been seen since the early 2000s.

ETHANOL BURIED

As petroleum dropped this week, so too did ethanol, which is mixed into gasoline for automobile fuel. This week, ethanol futures dropped as low as $1.30 per gallon, the lowest price in over a year. Nearly 40 percent of U.S. corn goes to make ethanol, which means that falling ethanol can hurt farmers’ bottom line.

As of midday Friday, March corn was worth $3.56 per bushel, near a one-year low.