Commodity Investors Environmental Fears

Investors are increasing their bets that a global campaign to reduce carbon emissions will stifle commodity output. This is driving up commodity prices for everything from natural Gas to aluminum.

Producers such as Exxon Mobil Corp. and Chevron Corp. are under pressure from investors. They have to reduce environmental damage, many are reducing spending on new output. Analysts say the warning comes after years of decreased production spending driven by low commodity prices and an emphasis on returning money to shareholders. Spending on oil and gas exploration and production should rise in the following years. However, it will remain lower than in 2019 and 40 percent to 50 percent lower than in 2014. Even with prices for metals like copper also at their highest levels in years, annual spending by mining companies should remain about 30 percent or more below a 2012 peak each of the next five years.

Bets on supply disruptions and improving demand are already raising raw-materials prices for consumers and businesses, fanning investor concern about rising inflation. The short-term picture is hazy due to the spreading Delta strain of the coronavirus and turbulence engulfing hugely indebted property developer China Evergrande Group. Hence some analysts still expect insufficient supply to sustain commodity prices.

Brent Crude and Natural Gas

According to FactSet, a commodity index is on track for its most significant yearly percentage increase on record in data stretching back three decades due to recent price hikes. This year’s surge in oil has consumers paying some of the highest costs in years for gasoline. It boosted the average U.S. price of a regular gallon to roughly $3.20, data from price tracker GasBuddy indicate.

Brent crude’s global oil price index rose 1.4 percent to $77.25 a barrel on Thursday. It reached its highest level in nearly three years.

Natural Gas recently set 712-year highs above $5 per million British thermal units. According to investors, prices could rise even more if cold weather in the coming months boosts demand. Natural gas and wind power shortages have pushed European power costs to all-time highs.

The tendency extends to industrial metals that are needed to create electric automobiles and houses. Copper prices hit all-time highs in May due to supply interruptions and project delays caused by environmental concerns everywhere from Minnesota to Alaska. In recent weeks, aluminum has surged, supported by constraints on how much power aluminum smelters in China may consume. In contrast, environmental concerns aren’t new for industries that consume large quantities of power and water and often contribute to local contamination.

Some investors are particularly bullish on metals like copper, aluminum, and lithium, powerful rechargeable batteries that power electric cars.

That demand for these resources from green-energy projects is likely to soar even as environmental concerns limit supply.

Still, some investors are skeptical that those. Other sources will replace longer-term supply shortfalls, partly because few regions in the world are immune from environmental pressure.