Fri, August 19, 2022

Commodity Market Overview: Will Oil Prices Keep Surging?

commodity trading

Commodities tumbled from record highs as investors reversed bullish bets on everything from corn to copper to oil amid recent signs of recession fears sweeping financial markets.

Brent crude fell below $100 a barrel on Thursday for the first time since April, 29% below its recent high. Other markets were also hit hard, with the broad S&P GSCI agricultural commodity price index down 28% from an all-time high in mid-May and the London Metal Exchange benchmark, which tracks six base metals, down a third since peaking in March.

The sharp decline happened as major central banks turned to monetary policy and raised interest rates to curb scorching inflation. Investors fear higher borrowing costs could derail the global economy after rapid price increases sparked a cost-of-living crisis.

It marks a sharp turnaround in commodity markets after a surge in early 2022, as commodity prices were buoyed by a post-pandemic recovery, underinvestment in new energy and mining assets, and supply shortages exacerbated by Russia’s invasion of Ukraine. Hedge funds have played a central role in the recent decline in commodity prices. It means selling long or positive positions in certain commodities, often replacing them with short bets.

West Texas Intermediate Crude Has Decreased

U.S. oil benchmark West Texas Intermediate fell 8.24 percent, or $8.93, to $99.50 a barrel. At one point, WTI fell more than 10% to $97.43 a barrel.

International benchmark Brent crude fell 9.45%, or $10.73, to $102.77 a barrel.

Prices have risen since Russia invaded Ukraine, raising fears of global shortages. Given the country’s role as a major supplier of commodities, especially to Europe, the war had a significant influence.

WTI rose to a high of $130.50 a barrel in March, while Brent was near $140. This is the highest level since 2008.

But before the Russian invasion, oil was already flowing due to tight supplies and increased demand.

High commodity prices have been a significant factor behind rising inflation at its highest level in 40 years.

Pump prices topped $5 a gallon in early summer, with the national average peaking at $5,016 on June 14.

Saudi Arabia Increases The Oil Selling Price

Saudi Arabia, on July 5, raised its selling price of crude to Asia to just below all-time highs, ostensibly because of strong demand and high refining margins.

In the two days since the world’s top oil exporter raised its official selling price (OSP), benchmark Brent crude futures fell 11.3%, reportedly due to weak demand and fears of a recession.

It may seem impossible to reconcile these two developments. Still, in a way, they reflect the difference between the realities of physical oil trading and perceptions of the larger paper market.

Brent crude fell below $100 a barrel on Wednesday after weakening in early Asian trade on Thursday, falling to $99.35, its lowest intraday price since April 11.

Lower Brent crude prices will encourage Asian refiners to buy more crude from suppliers such as China, whose prices do not match world markets. B. West African producers Angola and Nigeria.

Asian refiners with flexibility will first buy cheap Russian crude. Then they will purchase grades in line with Brent prices, making Saudi crude and Middle Eastern grades that follow Saudi OSP instead of the least popular oil.

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