Supply and demand is a wonderful explanation for commodity prices. For consumers we like to see as low price as possible, for producers they like to see as high price as the market can and will bear. For investors, as long as the price remains about the cost of production, the market will go up and down, but as there is stability in the market, all is good.

One of the easiest places to see supply and demand at work is the price of oil. During the global pandemic, the price of oil went down because people stayed home and demand fell. When countries opened up again, the price went up to record levels and has since fallen because demand in China has been relatively low as economic activity is not robust.

In an article by David McHugh of the Associated Press, the OPEC countries met in Vienna, Austria to determine countries production allocations. In addition to OPEC countries, Russia was included. Some countries such as Russia wanted no cuts in production, because they need the currency. While others such as Saudi Arabian agreed to a cut because they want a higher price. Saudi has large plans to diversify their economy away from oil and need $500 billion to build a new city called Neom.

Linking to dividend paying stocks, if you have investments in company that deal with commodity’s much will depend on the price of that commodity. If you own a major dividend paying company such as Exxon, the profits have increased with the higher price of oil and the company increased stock buybacks and special dividend payments to shareholders. Over the long term, shares in Exxon have done very well. The large producers want stability first, higher prices second which is a good thing for shareholders.

There are more questions than answers, till the next time – to raising questions.