In the Commodity Complex, Money Makes a Return

• The Three Kings of Commodities have all posted wild weeks this week, with late activity indicating the return of international investment money to the commodity complex. 
• Central Banks around the world continue to fight inflation by raising interest rates, a move that doesn't address the underlying issue of tight supplies and strong demand for most commodities. 
• The reality is the situation is the fault of many individuals around the world, though the role of Russia's Putin cannot be overstated. 

It has been an interesting week in the commodity complex, despite having only four days of fun and frivolity. Who can forget crude oil’s (CLQ22) $16 plunge from Tuesday’s high to Wednesday’s low, only to gain back $10 as we head for the homestretch Friday? In the metals sector, August gold (GCQ22) dropped as much as $76 through Friday’s low of $1,726 before somehow fining itself in position to possibly post a bullish short-term reversal on its daily chart. Then there’s December corn (ZCZ22) that plummeted to a low of $5.6650 this past Wednesday, $2.00 off its contract high less than two months prior, only to rally 50 cents ahead of another key weather weekend. And that’s just the Three Kings of Commodities, with plenty of others lighting up the quote screens along the way as well (e.g. lean hogs, the rest of the energy sector, and copper (HGU22) just to name a few). 

So what’s going on? The past few months have seen widespread fund liquidation in commodities, partly due to rising interest rates, partly due to recession fears, and yet another part possibly tied to recent news the Bank of France was going to crack down on commodity speculation in an attempt to curb inflation. But here’s the thing: None of these address the underlying issue of continued strong global demand pulling on ever-tightening supplies. For example, my Barchart piece from Thursday showed just how easy it would be for the US supply and demand situation to slip into critically tight territory. I’m still of the belief we are closer now than USDA is telling everyone, based on futures spreads and the Barchart National Soybean Price and Basis Indexes. The same argument can be made for corn, using the same fundamental reads. 

As for the energy sector, anyone can look at the inverted (backwardated) forward curves for crude oil (both Brent and WTI), distillates (diesel fuel, jet fuel, heating oil, etc.), and RB0B gasoline and see the long-term supply and demand situation is tight. As markets approach the weekend headlines are pouring in about how the German government is preparing its citizenry for what is expected to be continued fuel shortages this coming fall and winter. Similarly, we continue to see a reshuffling of the global wheat supply and demand deck following Russia’s leader Putin’s latest comments about how his war against Ukraine will be long and drawn out. 

As Shakespeare would say, “Ay, there’s the rub…” Everyone wants to point the finger of blame at their political opponent as the cause of global inflation and the upheaval of global supply and demand for so many markets. But the reality is the blame can be shared among many players, leaders of administrations previous and current, and Mother Nature. But the fact remains the same, the situation was worsened by the madman from Russia acting as a trial run for China’s President Xi regarding Taiwan. And since neither situation will be resolved any time soon, neither will global supply problems for most commodities. And as long as there isn’t a global crackdown on commodity trade, investment traders should return to the complex as buyers. 

• Crude Rallies on Strong U.S Labor Market Data
• Nat-Gas Soars on EIA Report and Weather
• Crude Sharply Higher on Prospects for Chinese Stimulus
• Crude Surges on the Prospects of Chinese Stimulus