People describe oil as being akin to ‘black gold’. However, oil has only become more valuable because the demand for it in such large volumes has risen sharply over the past century due to its usage across industries for various purposes (whether that be in the production of car or jet fuel, the production of plastics or electricity, for example).
The use value and market value of oil are undeniable. Several Middle Eastern economies have become extremely wealthy as a result of their oil reserves, discovered and exploited in a timely manner. However, what could be the next commodity that can shoot up in value in this way? Milled rice could, over time, become ‘white gold’.
According to Ricepedia:
“More than 90% of rice is produced and consumed in Asia. In terms of food consumption, what distinguishes Asia from the rest of the world is its great dependency on rice: it is the basic staple for the majority of the population, including the region’s 560 million poor. Other regions rely more heavily on other cereals.”
Looking at the following chart, it is clear that although rice price has declined since its peak in 2008, it has still increased since the 1980s:
Globally, people are growing increasingly anxious about a freshwater supply crisis/shortage (and, indeed, many are betting on it). Some are even saying that water scarcity is a significant causal factor for (civil) wars.
The World Economic Forum similarly suggested in its 2015 Global Risk Landscape Report that ‘Water Crises’ would have the most ‘impact’ amongst all the global risks (and a very high likelihood too). Climate change also threatens freshwater supplies.
“Irrigated rice receives about 40% of the world’s irrigation water and 30% of the world’s developed freshwater resources.”
Chemists have repeatedly sought to develop economical desalination methods to no avail and, notwithstanding a breakthrough in this regard, the price of rice will fundamentally face ever-increasing upward pressure (though an economic slowdown in Asia could relieve some of this pressure).
Although the IMF has forecasted that growth in the Asia-Pacific economies will decelerate slightly to 5.3% during 2016/2017, this is still a significant growth rate.
This increase in incomes across the Asia Pacific (and, furthermore, South Asia) will sustain an upward pressure on rice prices (because consumers will only substitute away from rice consumption to a certain degree).
Why ‘Milled’ Rice?
Whereas unmilled brown rice and has a relatively diminished shelf life, polished, stored and sealed properly white rice could have a shelf life of 25-30 years.
As such, it is possible to profit from spikes in demand as a result of freshwater scarcity over time (if one is so inclined) over the medium or long-term. As such, like real gold, it is portable and, to some degree, durable.
People should prepare for various eventualities and risks, invest in methods that can avert or alleviate global water crises and/or plan for a shortage that could lead to a devastating knock-on impact throughout industries (rice being just one vital one) and, therefore, people’s lives.
UK Gas Prices Surge Following Deadly Austrian Explosion
Gas prices have soared to their highest level since 2013, following an explosion at a natural gas hub in Austria, which threatened supplies already affected by a closed North Sea pipeline.
UK natural gas prices jumped 23% – to 73.7p a therm – on ICE Futures Europe ($9.86 a million British thermal units).
The blast, at Austria’s Baumgarten import hub, happened at around 9 a.m. and left at least 18 people dead. This interrupted flows at one of the main points where Russian natural gas enters Europe. This follows two days of snow in London and cold temperatures elsewhere in Europe.
Arne Bergvik, chief analyst at Swedish utility Jamtkraft, has said that it is the “worst possible time” for a big gas hub to burn, as capacity is needed ahead of the winter and it changes the expectations of how much gas there will be available. He said:
“If weather turns colder and capacity is unavailable, it will absolutely drive up power prices.”
Both gas and oil prices were already affected this week, due to the shutdown of the Forties Pipeline System, which delivers around 40% of the commodities from the UK North Sea.
Rising energy costs are contributing to the UK’s high inflation rate, which increased at 3.1% In November, its fastest pace in five years.
Why Bitcoin Is Not Chipping Away at Demand for Gold
The simultaneous rise of bitcoin and relatively poor performance of gold has provoked many to ask whether the two assets are in competition. The short answer is no, they are not.
“Bitcoin has real potential, if it were to become digital gold it might have tremendous space to grow,” said Gabor Gurbacs, Vaneck Securities Director of Digital Asset Strategy. It is this sentiment which has put the two in contest. However, the investor pool for each is “vastly different”, according to Jeffrey Currie, head of commodities research at Goldman Sachs.
Gold based exchange-traded funds are currently at close to their highest since May 2013, suggesting the metal remains part of investor’s portfolios, and not that investors have not cashed out and moved over to bitcoin. The reason this is not the case lies in comparing the function each asset serves and the investors it attracts.
Comparing Bitcoin and Gold
Bitcoin attracts more speculative investors looking for quick returns, while gold is often held as a portion of investment portfolios to spread risk. In times of economic downturn gold tends to go up in price, balancing any losses from stocks and bonds. The two assets currently serve distinct purposes. Consequently, bitcoin’s price rise is unlikely to have turned investors away from gold.
Oil Prices Rise as UK Major Pipeline Closes for Repairs
Oil prices have reached a two-and-a-half-year high after a hairline crack was found in one of the world’s most important oil conduits. The Forties Pipeline System, which carries 40% of North Sea oil and gas, is closing for repairs after the fault was found near Aberdeen, Scotland.
This pushed Brent crude to over $65 a barrel, which it hasn’t reached since June 2015.
Tom Crotty, Director of Ineos Group, which operates the Forties network, said that the pipeline’s closure is a “force majeure situation” that will prevent the operator from moving oil through the system for the next two weeks. He said that they will know in the “next few days” how long the system will be closed for. Although routine maintenance work on pipelines is common, closures related to cracks of this nature are not.
Oliver Jakob, an analyst at Petromatrix, a Swiss-based consultancy, said:
“It’s more than just a supply disruption because it’s more significant as a price maker. There’s one thing which is the volume of oil which is lost, but it’s also that it’s a key price benchmark.”
Also, according to McKinsey Energy Insights, the closure may benefit sellers the Middle East and Asia-Pacific region as buyers look at alternatives to the North Sea supply.
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