Commodities have performed well so far this year, driven by the strength of oil from low supply, but concern that the economy is heading for a recession has fueled losses among industrial metals .
In trading on Thursday, the S&P Goldman Sachs Commodity SPGSCI index,
traded more than 30% higher so far this year from Thursday afternoon, almost 2% more in the second quarter, but also fell more than 6% during the month of June, after of six consecutive monthly earnings.
Year-over-year performance of commodities as an asset class has been “similar to that of Tilt-a-Whirl,” said Walter Kunisch, Jr., a senior commodities strategist at Hilltop Securities, in reference to a well-known trip that has freewheeling cars.
“The global political economy, country-level political policies, China’s zero COVID policy, along with persistent supply chain problems and dynamic supply and demand variables have made participants of the market take a wild ride, ”he told MarketWatch.
Energy
Oil, natural gas and gasoline were among the highlights. The S&P GSCI Energy SPGSEN index,
it is trading more than 53% beyond this year, on the way to a quarterly gain of more than 11%, although it has fallen by more than 4% so far.
“Years of massive investment limited by a pandemic are emerging now,” said Matt Sallee, portfolio manager and president of Tortoise. “Combine that with one more year of expanding mobility restrictions and supply simply can’t keep up, so massive oil gains so far.”
US West Texas Intermediate reference crude oil CLQ22,
CL.1,
was almost 41% higher so far this year, while world-renowned Brent crude BRNU22,
BRN00,
almost 48%, for the best start of the first half of the world benchmark since 2009.
US Natural Gas Reference Prices NGQ22,
NG00,
they have also risen by more than 45%. RBQ22 petrol futures,
RB00,
they have gained nearly 64% this year as the average U.S. price on the pump hit a record above $ 5 earlier this month.
I will see: Gasoline prices have come down, but they probably haven’t reached their peak yet
Europe is “suddenly competing” with Asia for U.S. natural gas, and that market is also “suffering from insufficient investment, which further aggravates the tightness of the commodity market,” Sallee said.
With this in mind, he sees oil and gas stocks as an essential part of any investor’s portfolio, given a “macro environment of [interest] rates, inflation and energy security “. He expects commodity price inflation to persist for several years and energy stocks are the” perfect cover “, adding that after several years of lower performance, the sector energy is in the “early stages of a multi-year bullish cycle”.
Even in a recessionary environment, Sallee said the world is unlikely to experience much relief in oil and natural gas prices. As markets discover that the Organization of the Petroleum Exporting Countries “has virtually no supply” and an exodus of Western energy companies appears in future Russian production, commodities will resume their upward movement, “he said. dir Sallee.
On Thursday, OPEC and its allies, jointly known as OPEC +, confirmed a proposal to increase production by another 648,000 barrels a day in August.
Fat and cattle
Cereals and livestock have also traded mostly higher. The S&P GSCI Agriculture SPGSAG index,
it was up about 10% this year, but down 13% during the month and nearly 10% lower during the quarter.
“Demand remains one of the most prominent unknowns known [the] energy and livestock sectors, “Kunisch said. and livestock “.
So far this year, the future Lean-Hog LH00,
have risen more than 25%, while the feeding cattle FC00,
they have increased by about 4%.
Kunisch said Hilltop Securities sees a “prolonged drought in key cattle-producing states … as the main driver that has forced the liquidation of the domestic herd of beef cattle.” , which could raise beef prices downstream, “he said.
Also so far, W00 wheat futures,
they have risen by almost 15%, soybeans have risen by almost 9% and maize has gained by 4.5%.
The “dynamic and fluid global structure of supply and demand” of grain, as well as energy and livestock, complexes have “exposed the structural deficiencies of supply and offered investors opportunities to make a profit. disproportionate compared to stocks and bonds, ”Kunisch said.
Industrial and precious metals
Silver and copper, meanwhile, are among the declining commodities. The S&P GSCI SPGSIN industrial metals index,
it has lost more than 10% so far, almost 24% during the quarter and losing about 12% during the month.
Among the key factors that contributed to the poor performance of copper and silver was the “much faster pace” of interest rate hikes by the Federal Reserve and major central banks, said Chintan Karnani, director Insignia Consultants Research. The lack of Chinese demand, with much of the nation in confinement for a while and the fear of a recession were also to blame, he said.
Karnani said he is optimistic about copper and silver, as well as all industrial metals, for the rest of the year, although copper and silver prices may not see large increases until August.
On Thursday, SI00 silver futures,
fell almost 13% and copper HG00,
it was trading 17% lower last year.
Chinese demand for industrial metals is likely to rise sharply in the third quarter as factories run at full capacity, Karnani said, and the “growing generation” of global interest rates by most central banks is expected to surpass in October.
Gold has also come down so far, pressured by a stronger dollar and rising real interest rates, said William Cai, co-founder and managing partner of Wilshire Phoenix.
He expects the strong dollar and the rise in real interest rates to continue to put pressure on both gold and silver. However, “an unexpected acceleration in economic deterioration could quickly raise prices to the highest reached earlier this year,” he said.
GC00 Gold Futures,
have lost more than 1% so far this year and the S&P GSCI Precious Metals SPGSPM index,
has dropped 1.7%.