Most commodity prices fell this week amid a general sell-off in risky assets and a stronger US dollar. That said, we think the days of higher energy prices leading to an all-encompassing rally in commodity prices could be over. Natural gas prices rose on news of disrupted supply through a key transit point in Ukraine but, unlike in previous weeks, other commodity prices didn’t follow natural gas upwards. Instead, difficulties gaining unanimous approval from EU member states for an oil embargo weighed on oil prices. And industrial metals prices fell as data released this week highlighted the severe impact of lockdowns on Chinese demand.
Commodity prices will continue to take their direction from latest developments in the newsflow, but we can expect a more nuanced story as commodity groups follow different drivers in the coming weeks. Energy and certain agricultural commodity prices will probably track developments in the war and related sanctions. But industrial metals will continue to take direction from the outlook for demand in China. Prices will probably suffer next week as activity data from China are likely to show that economic activity took a big hit in April as efforts to contain the latest virus outbreak intensified.
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