Commodities are rising, but are they in a supercycle?

Lately, we have seen surges in prices of commodities, oil, and gas. This has excited some commodities traders about the possibility of a new supercycle of fair prices for an extended period—something we’ve seen between 2005 and 2011. 

Alejandro Padilla from Mexico’s Grupo Financiero Banorte said that market operators and investors now focus on the reflation trade phenomenon, or commodities are booming during the global post-pandemic recovery. 

Some commodities reacted significantly with quite impressive increases in prices. Copper has been trading at highs since 2011; Aluminum is standing at highs not seen since 2018. 

According to Padilla, historically, high prices are an indicator that many market participants follow. Besides, oil prices have seen fairly significant growth. He says this leads to the question of a commodity supercycle.

Alfonso Martin, director of commodities sales for Bank of America Merrill Lynch, said that low monetary policy rates and massive fiscal stimuli generate interest from investors. Commodities are now a hedge against rising inflationary risk. 

Some commodities have a high correlation with inflation. This has attracted several financial assets to return to the commodity market.

Martin stated he wouldn’t call it a supercycle. However, he does believe we are in a bull market. Many raw materials prices have bounced more than 100%. Some generated profits of around 40% to 60% in the last six months. The expected recovery in demand and the urge to hedge against inflation made these earnings.

Brent oil price rises to $67.82 today.

At the beginning of today’s trading day, Brent oil futures for May delivery traded at $67.82 a barrel, rising about + $1.08 compared to $66,74, the Thursday’s close. 

Meanwhile, WTI oil delivery for April traded at $64.75 a barrel, rising about + $0.92 compared to Thursday’s $63,83. 

OPEC and its allies appear determined to tighten the oil market. They agreed to leave their massive production cuts unchanged for April mostly. 

In making such a deal, the OPEC+ alliance heeded Saudi energy minister Prince Abdulaziz bin Salman’s calls to keep a tight hold on oil supply, despite warnings from analysts and key consuming countries that the market rally risks impairing a global economy still reeling from the pandemic.

Delegates said that economic uncertainty prompted the producer group to maintain its reductions. There are many potential pitfalls ahead, including an uneven COVID-19 vaccine rollout and lockdown measures that restrain the oil demand.