Analys

A moment in markets – Are we in a commodity supercycle?

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4 år sedan

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19 april, 2021

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The notion of a commodity supercycle is exciting for commodity investors. The term supercycle is used for a bull run that may extend for many years. What rouses investors is not only the prospect of making attractive returns on their commodity investments if there is indeed a supercycle, but also the knowledge that timing the market is not necessarily paramount given the trend might last for several years.

Commodity markets broadly have made significant gains after bottoming out in March last year. But can the bull run be classified as the early phase of a supercycle? The key thing is this: for a cyclical upswing to become a supercycle, there needs to be a structural driver of demand. In the previous so-called commodity supercycle, which took place largely over the first decade of this century, rapid industrialisation in BRIC countries was the catalyst. The 2008 global financial crisis proved to be a decisive setback. Any subsequent recovery in commodities was thwarted initially by the European sovereign debt crisis and eventually by trade wars between China and the US. While there were still instances of strong performance in various commodities individually, gains made by the asset class overall in the first decade of the century were lost in the second.

Hitting rock bottom can introduce a relief rally but is not enough to initiate an entire supercycle. What might be the catalyst for another supercycle in this decade and, if it happens, what shape might it take?

The energy transition could be the key driving force going forward. This megatrend has been catalysed by the pandemic whereby policymakers have recognised the need for fiscal injections to induce growth, rather than relying just on monetary policy. Moreover, a large proportion of any infrastructure spend that gets introduced as part of any fiscal expansion is likely to go towards green initiatives. A third of President Biden’s pledged $2 trillion infrastructure spend is earmarked for the transportation and electric vehicles sector. China has already introduced a new energy vehicle industry plan that has kicked off in 2021 and aims to make pure electric vehicles the mainstream option for automotive sales by 2035. Many countries in Europe have already introduced bans on new internal combustion engine vehicles at various points over the next decade.

Policymakers are therefore paving the way for this industry to thrive. Most recently, the automaker Jaguar Land Rover declared its intentions to test hydrogen fuel cell technology this year in a bid to electrify its entire fleet by 2025. The uptake of electric vehicles from consumers is also on an exponential trajectory. According to Wood Mackenzie, there may be 300 million electric vehicles on roads worldwide by 2040 – up from around 5 million in 2019.

The energy transition bodes well for green metals like copper, nickel, silver, aluminium, and platinum, to name a few. For metals, there is a structural source of demand growth which is expected to accelerate over the coming years, if not decades. Demand is also likely to be global in nature rather than driven by a handful of countries. And weakness in the US dollar in the near term may provide just the added impetus for this megatrend to accelerate.

Commodity investors have numerous options ranging from individual commodities to targeted or broad baskets. The most profound observation when looking at global exchange traded product flows for commodities is how broad baskets have risen from obscurity last year to dominating flows this year. Flows into broad commodities have exceeded $6 billion year to date while industrial metals stand at second place with just under $800 million in net inflows.

To conclude, are we in a bull run for commodities? It certainly appears to be the case. Is it a supercycle? Might be early to say but the question certainly warrants attention. Might a subset of the commodity universe like metals be in a supercycle? It is becoming easier by the day to make that case. Regardless of whether investors subscribe to the notion of a supercycle or not, it is indeed an exciting time for commodities.

Mobeen Tahir, Associate Director, Research, WisdomTree

Relaterade ämnen:supercycle wisdomtree

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Stronger inventory build than consensus, diesel demand notable

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2 dagar sedan

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21 februari, 2025

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Yesterday’s US DOE report revealed an increase of 4.6 million barrels in US crude oil inventories for the week ending February 14. This build was slightly higher than the API’s forecast of +3.3 million barrels and compared with a consensus estimate of +3.5 million barrels. As of this week, total US crude inventories stand at 432.5 million barrels – ish 3% below the five-year average for this time of year.

Ole R. Hvalbye, Analyst Commodities, SEB

In addition, gasoline inventories saw a slight decrease of 0.2 million barrels, now about 1% below the five-year average. Diesel inventories decreased by 2.1 million barrels, marking a 12% drop from the five-year average for this period.

Refinery utilization averaged 84.9% of operable capacity, a slight decrease from the previous week. Refinery inputs averaged 15.4 million barrels per day, down by 15 thousand barrels per day from the prior week. Gasoline production decreased to an average of 9.2 million barrels per day, while diesel production increased to 4.7 million barrels per day.

Total products supplied (implied demand) over the last four-week period averaged 20.4 million barrels per day, reflecting a 3.7% increase compared to the same period in 2024. Specifically, motor gasoline demand averaged 8.4 million barrels per day, up by 0.4% year-on-year, and diesel demand averaged 4.3 million barrels per day, showing a strong 14.2% increase compared to last year. Jet fuel demand also rose by 4.3% compared to the same period in 2024.

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Higher on confidence OPEC+ won’t lift production. Taking little notice of Trump sledgehammer to global free trade

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4 dagar sedan

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19 februari, 2025

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Ticking higher on confidence that OPEC+ won’t lift production in April. Brent crude gained 0.8% yesterday with a close of USD 75.84/b. This morning it is gaining another 0.7% to USD 76.3/b. Signals the latest days that OPEC+ is considering a delay to its planned production increase in April and the following months is probably the most important reason. But we would be surprised if that wasn’t fully anticipated and discounted in the oil price already. News this morning that there are ”green shots” to be seen in the Chinese property market is macro-positive, but industrial metals are not moving. It is naturally to be concerned about the global economic outlook as Donald Trump takes a sledgehammer smashing away at the existing global ”free-trade structure” with signals of 25% tariffs on car imports to the US. The oil price takes little notice of this today though.

Bjarne Schieldrop, Chief analyst commodities, SEB

Kazakhstan CPC crude flows possibly down 30% for months due to damaged CPC pumping station. The Brent price has been in steady decline since mid-January but seems to have found some support around the USD 74/b mark, the low point from Thursday last week. Technically it is inching above the 50dma today with 200dma above at USD 77.64/b. Oil flowing from Kazakhstan on the CPC line may be reduced by 30% until the Krapotkinskaya oil pumping station is repaired. That may take several months says Russia’s Novak. This probably helps to add support to Brent crude today.

The Brent crude 1mth contract with 50dma, 100dma, 200dma and RSI. Nothing on the horizon at the moment which makes us expect any imminent break above USD 80/b

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Brent looks to US production costs. Taking little notice of Trump-tariffs and Ukraine peace-dealing

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6 dagar sedan

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17 februari, 2025

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Brent crude hardly moved last week taking little notice of neither tariffs nor Ukraine peace-dealing. Brent crude traded up 0.1% last week to USD 74.74/b trading in a range of USD 74.06 – 77.29/b. Fluctuations through the week may have been driven by varying signals from the Putin-Trump peace negotiations over Ukraine. This morning Brent is up 0.4% to USD 75/b. Gain is possibly due to news that a Caspian pipeline pumping station has been hit by a drone with reduced CPC (Kazaksthan) oil flows as a result.

Brent front-month contract rock solid around the USD 75/b mark. The Brent crude price level of around USD 75/b hardly moved an inch week on week. Fear that Trump-tariffs will hurt global economic growth and oil demand growth. No impact. Possibility that a peace deal over Ukraine will lead to increased exports of oil from Russia. No impact. On the latter. Russian oil production at 9 mb/band versus a more normal 10 mb/d and comparably lower exports is NOT due to sanctions by the EU and the US. Russia is part of OPEC+, and its production is aligned with Saudi Arabia at 9 mb/d and the agreement Russia has made with Saudi Arabia and OPEC+ under the Declaration of Cooperation (DoC). Though exports of Russian crude and products has been hampered a little by the new Biden-sanctions on 10 January, but that effect is probably fading by the day as oil flows have a tendency to seep through the sanction barriers over time. A sharp decline in time-spreads is probably a sign of that.

Longer-dated prices zoom in on US cost break-evens with 5yr WTI at USD 63/b and Brent at USD 68-b. Argus reported on Friday that a Kansas City Fed survey last month indicated an average of USD 62/b for average drilling and oil production in the US to be profitable. That is down from USD 64/b last year. In comparison the 5-year (60mth) WTI contract is trading at USD 62.8/b. Right at that level. The survey response also stated that an oil price of sub-USD 70/b won’t be enough over time for the US oil industry to make sufficient profits with decline capex over time with sub-USD 70/b prices. But for now, the WTI 5yr is trading at USD 62.8/b and the Brent crude 5-yr is trading at USD 67.7/b.

Volatility comes in waves. Brent crude 30dma annualized volatility.