Commodities caught in a tug of war

This week, commodity prices continued to be caught in the middle of an ongoing tug of war between tight supply and deteriorating demand. We ultimately expect that to play out in two different ways over the rest of this year. On the one hand, the deficit in the oil market in Q4 of this year will, in our view, cause oil prices to edge higher. On the other, sluggish economic growth in China and a downturn in global manufacturing will probably extend the slide in industrial metals prices.

China will take centre stage in commodity markets next week. The 20^th Party Congress begins over the weekend, but any developments are likely to fall short of easing investors’ worries around commodities demand. It is unlikely that policymakers will reverse course on the zero-COVID strategy or for any major stimulus to be announced. Meanwhile, there is a raft of key data due to be released, including GDP and activity data, which we expect to show the economy was little changed from its Q1 level.

We will also hold the next of our Spotlight discussions next week. This will be on the implications of the fracturing of the global economy for key commodities. (Clients can register here.)