Most traded commodities: Which commodities are on top in 2022?
Commodities prices – from oil, natural gas, copper to gold and wheat – continued their robust performance in the first quarter of 2022 following Russia’s invasion of Ukraine in February. The resulting instability saw commodities prices rally to fresh multi-year highs.
On 8 March, the London Metal Exchange (LME) had to suspend nickel trading after the metal soared 70% in one day and briefly broke the $100,000 per tonne barrier. The volatile trading was later attributed to China’s Tsingshan Group, one of the world’s biggest nickel producers who bought large amounts to hedge its short bets.
Entering the second quarter of the year, macroeconomic headwinds blew bearish sentiment as the impact of sky-high commodities prices started to take a toll. The US Federal Reserve (Fed) kicked off its tight monetary policy with aggressive rate hikes to bring down the inflation rate that hit four-decade high due high petroleum prices.
China reimposed strict Covid-19 restrictions, including lockdowns and mass testing, to fight fresh outbreaks at the end of March. While the country has since eased restrictions, concerns have been raised about the slowing growth of the world’s second largest economy. China is one of the world’s largest importers of commodities and energy – from oil, copper to iron ore and nickel.
However, in spite of commodities prices retreating in recent weeks, commodities remain some of the world’s most traded assets.
Most traded commodities
So, what are the most traded commodities today? We look into the top traded commodities on Capital.com.
US crude oil
Despite the global push to reduce oil consumption and switch to renewable energies, oil has remained one of the most valuable commodities.
Crude oil prices have rallied since last year as demand gradually recovered as more countries eased Covid-19 restrictions. Prices received a boost from sanctions against Russia’s oil and gas exports following the country’s invasion of Ukraine, heightening worries about supply crunch.
US crude West Texas Intermediate (WTI) price is typically less expensive than international benchmark Brent crude oil. However, WTI price has been catching up with Brent this year on the prospect of rising demand for US crude amid potential reduction on Russian oil due to the sanctions.
WTI has gained 34.9% in 2022. The US Energy Information Agency (EIA) on 7 June forecast WTI to average $102.47 per barrel (bbl) this year, up from $68.21/bbl in 2021, but it is expected to ease to $93.24. Fitch Solutions on 7 July forecast WTI to average $102/bbl this year, up from $68/bbl in 2021.
Gold
Gold is a constant popular commodity for investment since it is the oldest form of wealth storage known to civilisation. It remains the investment of choice in times of uncertainty, such as wars and hedge against inflation. It is not surprising that gold ranks second on the list of top traded commodities in Capital.com.
In the first quarter of 2022, the gold price had rallied near its record high of above $2,000 an ounce seen in mid-2020, amid uncertainty on the onset of the war between Russia and Ukraine. However, gold’s rally quickly lost its shine by May as the Fed’s aggressive rate hikes to combat higher than anticipated inflation rate. Prices have since fallen around 5% this year.
In a note on 27 June, J.P Morgan wrote:
The bank forecast gold to average $1,812 an ounce this year.
Swiss investment bank UBS forecast gold to average $1,700/ounce by end of this year due to higher interest rates and falling inflation.
Natural gas
Natural gas prices in the US, Europe and Asia have continued their rally, which started last year with ongoing supply problems from Russia. The Russia-Ukraine war exacerbated supply woes after Russia required buyers in Europe to pay with ruble for its gas, prompting buyers to find alternative supply from the US.
The rising demand from Europe has also increased competition for super-chilled liquefied natural gas (LNG) cargoes to Asia. The Japan-Korean Marker (JKM) – the LNG benchmark price for spot cargoes into the region assessed by Platts, has gained around 27% this year.
US natural gas futures have risen more than 73% this year. EIA estimated the Henry Hub spot price to average $8.69 per million British thermal units (MMBtu) in the third quarter, up from an average of $8.13/MMBtu in May. The prices are rising due to low inventories, steady demand for US LNG exports, and high demand from the utilities.
Brent crude oil
While it only came fourth on Capital.com, Brent crude oil has remained one of the most traded commodities in the world.
The Brent crude oil price has remained elevated due to strong demand and supply constraints from the Organisation of the Petroleum Exporting Countries (OPEC) producing countries. At the same time, oil markets tried to factor in how much Russian oil will disappear from the market when the EU’s ban on seaborne imports of Russian oil takes effect on 5 December.
EIA forecast Russia’s total liquid fuels output could decline to 9.3m barrels a day (b/d) in the fourth quarter of 2023, from 11.3m b/d in the first quarter of this year. Fitch Solutions on 7 July forecast Brent to average $105 in 2022, up from average $71 in 2021 as supply tightness in the market is expected to persist.
J.P. Morgan estimated Brent crude oil to average $104 in 2022, while Swiss investment bank UBS expected the crude oil to average $125/bbl at the end of this year.
Silver
Although silver is a precious metal, it’s less popular as a safe-haven investment than gold. However, silver has more industrial application. For instance, it is used in the production of solar panels.
The metal had gained in the first quarter of this year, tracking gains in other precious metals and commodities due to geopolitical tensions. It hit a 52-week high of nearly $27 an ounce in March. However, the price has continued to tumble since then.
“It’s been another disappointing performance for anybody who is expecting silver to start racing away this year,” said David Jones, Capital.com’s chief market strategist. Jones put $20.40/ounce as the short-term key level for silver.
Analysts’ forecasts
With uncertainty around the war between Russia and Ukraine, tight monetary policies, and risks of slowing economic growth. What are the best trading commodities, and will commodities remain a popular investment?
J.P. Morgan expected commodities to be on pace to deliver a third consecutive year of significant positive returns – up 30% year-to-date. Acute scarcity conditions continued to persist across commodities, supporting the assets strong performance going forward.
Natasha Kaneva, Head of the Global Commodities Strategy team at J.P. Morgan, in the note on 27 June said:
She added: “In our view, almost the entire complex remains a buy.”
UBS expected commodity prices to stay high amid supply challenges:
The bank viewed there was still room for another 10% to 15% move up in broad spot commodity indexes over the next six months.
The bottom line
This year could likely be a volatile one for commodities with myriads of factors, including macroeconomic headwinds and geopolitical tensions, pulling assets to different directions.
Certain sectors could remain bullish, while other assets may stay bearish.
It’s crucial to keep in mind that predicting commodity prices and making long-term projections are both challenging tasks due to the extremely unpredictable nature of the commodities markets. As a result, experts sometimes predict the wrong things.
FAQs
Are commodities a good investment?
While prices of commodities – from oil, natural gas, to gold, silver and base metals – have retreated in the past weeks due to recession fears, analysts expected prices to remain elevated for this year.
However, whether commodities are a good investment for you depends on your risk tolerance, investing goals and portfolio composition. You should do your own research. And never invest any money that you cannot afford to lose.
What commodities will rise in 2022?
No one can say for sure. Bear in mind that analysts’ forecasts are subject to error. They can be wrong. It is important to do your own research. In addition, remember that there are many factors that influence the rise and the fall of commodities prices. Just like other markets, commodities markets are volatile, so bear in mind that there are no guarantees.
What factors affect commodity prices?
There are many factors affecting commodities prices such as geopolitical tension, local conflicts, weather, government policies and exchange rates. Wars could damage production and distribution infrastructure as well as stop production due to security issues. Rains, drought and other natural disasters can also increase or cut commodities production, subsequently affecting prices.
Government policies, such as export bans and import duties, which serve as trade barriers to protect domestic markets, could affect commodities supplies and eventually have an impact on prices.
US dollar rates could also affect commodities prices. Most commodities are priced in US dollars. A stronger US dollar often makes commodities more expensive for holders of other currencies, which could dampen buyers' appetite to buy the commodities. Softer demand could have an impact on prices, too.
