All That you need to know About Global Commodities Action in 2020, Hits and Misses

All That you need to know About Global Commodities Action in 2020, Hits and Misses

Summary

  • Commodity market has witnessed a zig-zag movement since the beginning of the year with the COVID-19 outbreak impacting all the sectors differently.
  • While the energy market has seen its black day in April, the precious metal front has witnessed its brightest sunlight May 2020.
  • In the middle of all the fuss, commodities such as iron ore have remained immune due to the supply shortage, while others such as strategic metals- mainly rare earth elements and uranium have observed some unprecedented development.

Commodities on the global front has been on a roller coaster ride until now with many developments across the energy, precious metals, strategic metals, base metals, and iron ore.

The Oil and The Energy Market

At the beginning of the year, the travel ban along with many regional lockdowns across the globe have considerably reduced the demand for oil, leading to a massive bloodbath in the oil market with Brent crude oil futures nosediving to USD 15.98 per barrel (as on 22 April 2020).

To Know More, Do Read: Why US-Backed OPEC+ Production Cut Is a Failed Stimulus in the Status Quo?

WTI futures or the U.S. crude even plunged into the negative territory to trade at as low as USD -40.32 (as on 20 April 2020), where oil suppliers were entering the contract and paying buyers to park some of their abundant crude oil, which in the recent past has been the top cost for them in the face of the storage cost.

To Know More, Do Read: WTI Crude Oil Price Drops to Record Lows of Sub-zero levels

Post witnessing such a massacre on the oil market, the OPEC, Russia, and the United States took the rein in hand and decided to bring stability in the oil market by curtailing the production. OPEC and Russia entered a landmark agreement to slash the output by 9.7 million barrels per day till June 2020, which is now again on the table with OPEC demanding a likely extension in the production cut deadline until the year-end.

Furthermore, the domestic weekly oil production in the United States plunged to a 10-month low of 11.2 million barrels per day (for the week ended 29 May 2020) from its record average of 13.0 million barrels per day, seen during the first quarter of the year.

To Know More, Do Read: Oil Market Not Out of The Woods Yet- Says OPEC Secretary General HE Mohammad

While the OPEC has been dealing with the supply side of the equation, the global demand which is estimated by OPEC to witness a fall of 9.07 million barrels per day in 2020, is now resting on the shoulder of economic recovery across the globe, especially across China, which started an early lockdown and early resumption of economic activities.

Also Read: OPEC Anticipates Fall in Demand for Oil- Supply Chain to Match Tune?

Furthermore, the massive decline in oil prices had exerted pressure on commodities like gas- which derives its prices against the global Brent crude oil benchmark, leading to a considerable decline in average electricity prices, which also took a hit from falling demand for daytime cooling amid decent weather conditions and large penetration of solar rooftops panel across the continent and its integration into the national grid.

To Know More, Do Read: NEM Prices Average At Multi-year Low As Demand Dazes And Gas Price Declines in Q12020

At present, the Brent crude oil futures is rallying with the price now reaching a 3-month high of USD 42.48 per barrel (as on 5 June 2020).

The Precious Metals Front

Equity market, which previously remained under immense pressure due to the fear sentiment among investors, has now picked pace with many of the global indices such as Dow Jones, S&P 500 now rising to multiple week highs and some such as Nasdaq hitting record high of 9,846.63 (as on 5 June 2020) over the FOMO (Fear of missing out) buying activities along with improved risk appetite, leading a fall in gold prices.

The gold spot has now given a breakout below its consolidation range is currently under downside movement, increasing chances of a pending confirmation of the downside breakout.

To Know More, Do Read: Gold Slips Below USD 1,700 Per Ounce, ASX-Gold Stocks At the Brim of A Top

On the other side of the precious metal sector, in the recent past, silver has gained momentum with return materially outperforming the return from gold. The Silver Institute gas estimated that the price for silver would average around USD 19.0 per ounce, and currently, there has been a slight increase in the net longs position in silver.

To Know More, Do Read: Silver Outperforms Gold with Over 30% Return; Money Managers Betting on Silver!!

The Strategic Metals Sector

On the strategic metals counter, especially rare earth elements and uranium, the United States have been very active since the beginning of the year with Senator Ted Cruz proposing legislation to promote the local mines and pentagon investing in some of the major rare earth element companies outside China such as the ASX-listed Lynas Corporation Limited (ASX:LYC).

To Know More, Do Read: Rare Earth Elements Tug-of- War- Why U.S. Is Looking Towards Australia

Furthermore, the Nuclear Working Group created by the United States President Donald Trump had called for bold and immediate action, prompting the United States to establish a nuclear reserve and procure 17 to 19 million pounds of mined and milled uranium in the oxide form.

To Know More, Do Read: America Aims to Restore Leadership in Nuclear Energy; President Backs Purchase of 19 Mn Pounds of Uranium

The Base Metals Front

The base metals mainly copper, and nickel were among the hardest hit sector over the COVID-19 outrage with prices of copper plunging over 31 per cent during the March quarter from its top seen in January 2020, likewise, nickel futures witnessed the same trajectory.

Also Read: Where Would The Australian Supply Fit in the Projected Global Nickel Deficit Ahead?

However, since the beginning of the June quarter, base metals have picked up momentum over the recovery in economic activities and demand across China.

To Know More, Do Read: Base Metals Out of Woods Poised for an Overnight Spike or Risk of Another Sell-off Remains?

Iron Ore Market

Just like gold, iron ore has been a poster boy of the year with prices of the commodity sailing through tough market tide on the boat of supply deficit. While during the end of the year 2019, the iron ore market came under pressure, the supply shortage had assisted the commodity to stand tall against all the global backdrop, and currently, the rise in steel prices on the global front along with the falling steel inventory in China has propelled iron ore prices to a 52-week high.

To Know More, Do Read: Iron Ore- The Rally From 15-Week High to a 52-Week High

The rise in gold and iron ore prices have briefly supported the share price of many ASX-listed gold stocks and ASX-listed iron ore stocks with some of them making to the list of top performers of the year.

To Know More, Do Read: Top Five Metals & Mining Performers with Returns More Than ASX200 

 


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