Commodities Report: November 1 — November 5, 2021
Currently, more weight is placed on central banks around the world to end their quantitative easing program. The Fed is at the brink of announcing its plan to gradually pull back the pandemic stimulus this week. The Bank of England is also expected to access when and how to reverse stimulus program through interest rate hike to check rising inflation. Rates are projected to rise above 1 per cent by the end of 2022.
Consumers and producers are now expending more money and cost year-on-year. The current trend signals a continuation of the rise in price level.
OPEC meets on November 4 2021 to decide on whether or not to raise output. This is coming on the back of calls to increase in oil supply to push prices down. Output was left unchanged at 400,000 barrels per day (bpd) in the last October.
The October US job report is also expected to determine the movement in commodity prices. The official unemployment fell to 4.8%, after hitting 14.7% at the peak of the Covid-19 pandemic.
Inflation continues to take center stage, following the reopening and gradual recovery of economies. The US bureau of labor statistics released the CPI for September 2021 which represented the highest increase since July 2008, an occurrence that stretches to other economies across the globe. Canada’s CPI saw the highest rise in CPI since February, 2003 while Eurozone hit a 13-year high. This opens up the policy options of rates hike prospects and tapering instruments to tame inflation.
In general, we have seen about 27 major commodities outperform the last super cycles in the 1970s and early 2000s. Canada inflation hits the highest level in the last 18 years while UK inflation has seen the highest jump since 1997 and the Eurozone inflation has hit a 13-year high.
Natural gas is an easy replacement for coal, as countries around the world move to reduce Co2 emissions and deliver net zero emission goals by 2030. Unlike oil, which powers transportation, natural gas provides electricity and it provides heat for almost 63% of households and businesses across the world. Natural gas also powers 40% of the world’s electric grid.
Disruptions due to the global pandemic has indeed affected supply adversely fueling an increase in oil prices over 300%+ from the lows recorded in the previous year. Goldman Sachs predicts oil prices to reach $90 to $100 per barrel by December 2021 and the early part of 2022. Brent crude is currently at $84.41 while WTI crude is at $83.96 per barrel. Prices are converging to the earlier prediction of $100 per barrel by Q4:2021.
Surging inflation erodes wealth and spending power. As a buffer, beating inflation is key, the focus will be to use cash and not stockpile cash in a savings account as the interest earned from savings will be insufficient to suppress the effects of loss in investment money value.
Definition of Terms
Commodity Super Cycle is when commodities trade above their long-term price trend over a long period.
Stimulus package is a set of measures put in place by the government for the purpose of strengthening and stabilizing the economy.
Redfox Analytica and Global Markets. https://www.linkedin.com/in/redfoxanalytics/
