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Commodities, led by energy, ready to run in 2022: BoA

By Daniel Tyson

17:55, 1 December 2021

Person using calculator, next to model of a grocery card
Consumers will pay more for commodities in 2022 - Photo: Shutterstock

Commodity prices will continue to rally in 2022 largely due to pressure from global inflation, with energy outperforming metals and agriculture, the Bank of America predicted on Wednesday during a roundtable discussion.

In 2022, “commodities should continue to reign supreme as an inflation hedge, just as they have throughout financial history, and that will attract investor flows,” said Francisco Blanch, head of global commodities and derivatives research with the bank.

On the conference call, Blanch said while tighter monetary policy in the US and the world and a strong US dollar are the key downside risk of commodities, global manufacturing should continue to increase in 2022, creating a robust demand.

Individual commodities

The big question is: what will happen to crude oil prices? Blanch projects the average Brent spot prices could rise to around $120 (£90.19) per barrel by mid-2022 as the strong international travel season kicks off in the US and Europe. For 2021, BofA predicts Brent crude prices will come in at $85 a barrel.

Blanch isn’t as optimistic about natural gas, saying the Henry Hub price features a “significant risk premium” this winter resulting from the “surprisingly inelastic” supply-demand environment during the summer of 2021.

He forecasts a 2022 Henry Hub gas price average of $3.45 per million British Thermal Unit, down from the New York Mercantile Exchange average of $3.75 per million British Thermal Units average price in 2021.

Oil - Brent

80.28 Price
+0.170% 1D Chg, %
Long position overnight fee -0.0103%
Short position overnight fee -0.0116%
Overnight fee time 22:00 (UTC)
Spread 0.032

Natural Gas

2.93 Price
-0.610% 1D Chg, %
Long position overnight fee -0.1700%
Short position overnight fee 0.1481%
Overnight fee time 22:00 (UTC)
Spread 0.0050

Oil - Crude

75.35 Price
+0.210% 1D Chg, %
Long position overnight fee -0.0211%
Short position overnight fee -0.0008%
Overnight fee time 22:00 (UTC)
Spread 0.030


24.72 Price
+0.070% 1D Chg, %
Long position overnight fee -0.0195%
Short position overnight fee 0.0113%
Overnight fee time 22:00 (UTC)
Spread 0.020

By contrast, the bank is more cautious toward some industrial metals, as the Chinese real estate market continues to stumble. China’s building boom soured this past year after a number of high-profile defaults, including the highly watched Evergrande. Industrial metals such as copper are used in construction of buildings.

However, Blanch remains “selectively bullish” on precious metals like platinum and silver. Additionally, gold could gain from negative real rates, although US inflation could bring higher nominal rates too, a negative for the yellow metal.

2021 recap

During 2021, the ICE MLCX index rose a very respectable 63% and 49% year-to-date, helped by a surge in global mobility and energy prices.

Simultaneously, the MLCX Industrial metals and agriculture also recorded positive performance of 23% and 27% respectively YTD, but precious metals returns were -3%.

Looking into 1H22, the bank’s economics team sees US inflation staying elevated and a less accommodating Federal Reserve, but global GDP growth should stay strong at 4.2%.

Read more: Gas at three-month low, oil rebounds ahead of OPEC meeting

Read more: Crude futures bounce back Monday

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The difference between trading assets and CFDs
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.
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