Oil May Reach $100 as The Commodities Boom Moves Away from China

Prices for commodities ranging from corn to copper to oil skyrocketed in the first half of 2021 due to pent-up demand and supply bottlenecks caused by the COVID-19 epidemic. According to Saad Rahim, chief economist of Trafigura, the rally’s dynamics are shifting. Additional broad-based increases appear likely, one of the world’s major commodity-trading firms.

China was a significant driver of the commodities rises in the first six months of the year. Rahim told MarketWatch in a wide-ranging phone interview on Wednesday that it was “goods-intensive and metals-intensive. Now it is heavily reliant on the United States and the European Union and services and oil. Metals prices soared in the first half of the year, owing to increased demand from China, supply bottlenecks, and years of underinvestment in manufacturing. Steel futures were among the best performers in the first half, along with iron ore, copper, and other metals.

The S&P GSCI Index, Dow Jones Industrial Average

Steel and ethanol are leading the rise in commodity prices halfway through the year.

However, it was a broad-based rally. According to Dow Jones Market Data, the S&P GSCI Index SPGSCI, -0.20 %, which monitors 24 exchange-traded commodities, is up 31.1 % year to date, on track for its most excellent first-half performance 2008, when it gained 41.4 %. Commodity indexes outperform equity indexes, albeit significant stock indexes have recently reached or are trading around all-time highs. The Dow Jones Industrial Average DJIA, +0.30 %, increased 12.7 % in the first half of the year, the S&P 500 SPX, +0.34 % 14.4 %, and the Nasdaq Composite COMP, +0.01 % 12.5 %. The commodity recovery follows a multiyear decline that peaked last year when the epidemic pushed the world economy into a deep recession.

Lumber Futures

Some commodity markets have cooled off. Lumber futures LB00 -1.23 % have fallen nearly 60% from 2021 high as tight supplies have slowed house-building activity. However, lumber is still up over 60% over the last year. Copper is down 12% from its 2021 high, but it is still up about 57 % in the previous year. Oil is nearing its highest level since October 2018. Global benchmark Brent oil BRN00 -0.41 percent up to more than 40% year to date.

Meanwhile, West Texas Intermediate crude CL00, -0.51 percent CL.1, -0.51 percent is up more than 50%. Over the last year, both grades have risen by more than 80%. Trafigura CEO Jeremy Weir stated earlier this month that oil might reach $100 per barrel before demand peaks. Rahim predicted that oil market conditions would allow for a test of triple-digit territory “within the next year or two.”