Commodities

Commodities Economics Chart Book

Commodities Economics Chart Book

Omicron risks receding; energy still in short supply

Two themes have dominated commodity markets at the turn of the year: the ongoing shortage of energy commodities and the global rise in cases of COVID-19. On the former, we think that shortages will start to ease meaningfully later this year, which will weigh on the prices of both energy commodities and other commodities with energy-intensive production processes. However, we think the oil market may be dismissing the Omicron-related hit to demand a little too readily. After all, demand in the US has already softened significantly, and China has imposed new restrictions as part of its ‘zero-COVID’ strategy. As a result, the hit to oil demand may be larger and longer-lived than is currently priced into markets, which could lead to a sharp reversal in oil prices in the near term.

7 January 2022

Commodities Economics Chart Book

The net effect of Omicron on commodities is not clear

Most commodity prices have fallen in the last week or so following the identification of Omicron – a new, and potentially more transmissible, strain of COVID-19. However, while commentary has generally focused on the effects that the new strain and associated lockdown measures may have on commodity demand, less attention has been paid to the implications for supply. After all, OPEC+ has left the door open to a change in output quotas before the group’s next meeting in early January. And, at a time of already declining stocks of industrial metals, there is a risk that the new variant prompts closures of major smelters and mines. As a result, we are leaving our price forecasts broadly unchanged for now. In view of the wider interest, we are also sending this Commodities Overview Chart Book to clients of our Energy and Metals Service.

7 December 2021

Commodities Economics Chart Book

Gas & coal surge to support other commodity prices

Natural gas and coal prices soared in September. In turn, this has raised the output costs of industrial metals, most notably those which are especially energy intensive such as aluminium and steel. At the same time, reports suggest that some electricity providers are starting to substitute natural gas and coal for oil. While we expect natural gas and coal prices to ease back from here, they are likely to remain high by past standards well into next year. Nevertheless, we doubt this will be enough to prevent industrial metals prices from edging lower in tandem with weaker economic growth in China.

5 October 2021
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Commodities Economics Chart Book

Commodity prices on increasingly shaky ground

After sharp falls in the middle of the month, most commodity prices ended August broadly flat. However, we doubt it will be long before the downward pressure on prices intensifies again. After all, economic growth in most major economies now looks to be normalising following its surge from pandemic-induced lows, while growth in key commodity consumer China is entering into an outright decline. As a result, we continue to expect most commodity prices to fall in the remainder of this year.

Commodities Economics Chart Book

An emboldened UAE scuppers the OPEC+ united front

Oil prices were rising in June even before the July OPEC+ meeting ended in disarray, without agreement. Strong growth in demand as economies lift virus-related restrictions is expected to continue to support the prices of all energy commodities in the coming months. However, we expect the prices of metals and agricultural commodities to ease back as supply gradually picks up.

6 July 2021

Commodities Economics Chart Book

Most commodity prices to fall back before long

Prices generally rose in May, bolstered by signs of recovery in the global economy – led by the US – and stronger commodities demand. While prices could make further gains in the near term, we expect the prices of most commodities to be in decline by year-end on the back of slower growth in China’s economy and a more general improvement in supply.

Commodities Economics Chart Book

Commodity prices to take a breather in the near term

A rise in new coronavirus infections in many parts of the world, including Europe and India, weighed on investor sentiment in commodity markets in March. However, all the signs point to a rapid recovery in US activity and, as vaccines are rolled out, economies elsewhere should start to open up later this year. Accordingly, we expect the prices of oil and soft agriculturals, used in the travel and leisure sectors, to pick up in the second half of 2021.

Commodities Economics Chart Book

Investor optimism may prove short-lived

Most commodity prices rose in February encouraged by falling COVID-19 infections and the vaccine rollout, which point to a recovery in economic activity and higher commodities demand later in the year. That said, we expect oil to be the main beneficiary of the lifting of virus-related restrictions; metals and agricultural commodities could see demand falter if we are right and China’s economy slows.

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